Wednesday, November 30, 2016

Celebrating five years of Vanguard Retirement Plan Access

Five years ago, Vanguard launched Vanguard Retirement Plan Access (VRPA), its 401(k) retirement plan offer for small businesses. VRPA now provides services to more than 6,000 plans and over 260,000 participants. In this Q&A, Crystal Hardie Langston, head of VRPA, reflects on how this service has supported small businesses and financial professionals in an evolving retirement industry to help position plan participants for retirement success.

What did Vanguard hope to help small businesses achieve when VRPA was started five years ago?

Crystal Hardie Langston: Bottom line, small businesses and their employees should have the same access to low-cost, high-quality plans. We had businesses continually coming to Vanguard looking for a lower-cost program than what was available in the marketplace. VRPA has met that need by making 401(k) plans more accessible to small-business owners and by pushing industry costs lower for plan sponsors and participants. Through low-cost investments and retirement plan expertise, we're extending access to high-quality plans to thousands of employees so they can save more for retirement.

How is VRPA helping small businesses manage the challenge of providing retirement plans for employees?

Crystal Hardie Langston: Small-business owners wear many hats and juggle many competing priorities. So, it's difficult for these employers to find the time and money to offer an attractive retirement program that appeals to the top-notch talent they need to recruit and retain.

We've seen firsthand that VRPA helps these small businesses by providing them with the right tools and information to manage a competitive retirement plan. For example, we can help employers act in the capacity of a fiduciary, remain compliant with IRS and Department of Labor regulations, as well as ensure that employees have access to information on how to use their plan to meet their needs.

Considering the complexity of 401(k) plans, how are small businesses managing plan design?

Crystal Hardie Langston: Small business plan sponsors are stepping up and designing their plans like larger, state-of-the-art plans, and some are even faring better than larger plans.¹ Many smaller plans, for example, are not only offering target-date funds, but they also are defaulting participants into them at increasing rates. As a result, nearly 80% of VRPA plan participants have an optimal, broadly diversified, and balanced portfolio. Many of the small-business owners we serve also work with a designated financial professional who provides an additional source of retirement expertise.

How are financial professionals helping small businesses meet retirement plan challenges?

Crystal Hardie Langston: Vanguard has been working with advisors in an increasing capacity over the last 13 years, but over the last five years, we've seen a dramatic and positive shift in the role financial professionals play. Traditionally they've been hired for their expertise as investment experts. However, many also have cemented their roles as retirement plan specialists, specifically by providing ERISA expertise. As a result, they've expanded their services to partner with business owners to help them understand and navigate their fiduciary responsibilities.

Many financial professionals are now offering support for complete retirement plan management as well, including plan design consultations, participant advice, and fiduciary services. Plan sponsors are ultimately responsible for their plan, but we've seen tremendous success in working with financial professionals to ensure plans stay on track. As a result, we're constantly evolving VRPA to better partner with these professionals.

With the growing need to provide retirement programs to small-business employers, many providers are aggressively entering this space.² How is VRPA differentiating itself from other options?

Crystal Hardie Langston: We're drawing on our legacy of low-cost investing and defined contribution leadership. Through VRPA, we can offer small businesses access to some of the lowest-cost options available to investors. For example, we recently expanded our institutional suite of Target Retirement Funds.

In addition, Vanguard has been recognized as a leader in defined contribution innovations, and we're investing significant resources to continue to improve and evolve in this space. We can provide educational resources that include targeted communications and an online learning experience. We also use our retirement research to drive many of the decisions we make in our service offer.

How does VRPA help plans navigate proposed regulatory changes, including fee disclosures, retirement income, brokerage windows, and other regulatory initiatives?

Crystal Hardie Langston: Vanguard is an active voice in Washington, and we work closely with our clients to ensure they understand how new regulations may impact them. VRPA was specifically designed to help small businesses navigate the administrative hurdles that are involved with these changes. We also guide plan sponsors to help them meet regulatory requirements, and the research provided by our legal and ERISA experts outlines fiduciary best practices in plan and investment design to prepare for any regulatory changes.

Where do you see the retirement industry five years from now?

Crystal Hardie Langston: First and foremost, services will be driven by a continued and increasing focus on cost and fee transparency. I also think indexing will continue to dominate in the defined contribution space. Meanwhile, we'll be able to provide more individual investment support by working with financial professionals.

While there has been tremendous progress in the defined contribution space, there's still opportunity to move the savings dial, particularly for small-business participants. By partnering with plan sponsors and financial professionals, we'll find and implement innovative ways to prompt better savings behaviors and help move investors toward retirement readiness. As the industry changes, so will VRPA. We're continually working to provide the highest-quality service available while also doing what's expedient for plan participants.

What does Vanguard have in store for its clients in the year ahead?

Crystal Hardie Langston: We've got some exciting developments in the works. In the near future, look for us to do the following three things. We’ll launch a redesigned employer website with improved navigation and easily identifiable action items. We’ll also be releasing a new participant website with a modern look and feel that helps employees understand how to save meaningfully for retirement. And, finally, we’re updating the Fiduciary Benchmarks report to add new data points for enhanced comparative analysis of your plan.

¹ Vanguard, How America Saves 2016: Small business edition, June 2016.
² Cerulli estimates that nearly 16 million Americans working full-time for private-sector businesses with fewer than 100 employees don't have access to an employer-sponsored retirement plan of any type.


Notes:

  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
  • Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date.
  • Retirement plan recordkeeping and administrative services are provided by The Vanguard Group, Inc. (VGI). VGI has entered into an agreement with Ascensus, Inc., to provide certain plan recordkeeping and administrative services on its behalf. Ascensus is not affiliated with Vanguard Marketing Corporation, The Vanguard Group, Inc., or any of its affiliates.

Contribution limits for 2017














The IRS has announced the 2017 cost-of-living adjustments (COLAs) to applicable dollar limitations for retirement plans. Please contact your Vanguard Retirement Plan access Client Service Team if you have questions about the adjustments.

Retirement Plan Limitation
2016
2017
402(g)(1) salary deferral limit
$18,000
$18,000
Catch-up contribution
$6,000
$6,000
415(c)(1)(A) annual additions limit (defined contribution plans)
$53,000
$54,000
415(b)(1)(A) annual benefit limit (defined benefit plans)
210,000
215,000
Key Employee Officer amount
$170,000
$175,000
Highly Compensated Employee (HCE)
$120,000
$120,000
SIMPLE plan salary deferral limit
$12,500
$12,500
SIMPLE plan catch-up contribution
$3,000
$3,000
Annual compensation cap
$265,000
$270,000
Social Security taxable wage base
$118,500
$127,200
SEP plan minimum compensation amount
$600
$600

Your guide to annual notices

For plans with a December 31 plan year end

You’re required to send certain annual notices to participants in your retirement plan. These notices play an important part in keeping participants in the know about how your plan operates. Use this guide to help you track what you have to send, who you have to send it to, and when you have to send it. 

Please note that your annual notice obligations will be taken care of for you if you’ve signed up for our notice delivery service. If you’re interested in signing up for this service in 2018, keep an eye out for a reminder to opt in within the next year.

Contact your Vanguard Retirement Plan Access Client Service Team for questions about your notices and where you can find them.



Notice Type & Guidelines
The number and type of notices depends on how your plan is set up


Participant Fee Disclosure - For all plans

Delivery date: Annual notice typically must be delivered no later than 365 days from delivery of the last annual notice.

Provide to: Employees who are currently eligible and those who will be eligible to participate in your plan by January 1, 2017, former employees with an account balance, and beneficiary account holders.

Planning for 2017: Newly eligible employees must receive a fee disclosure document prior to enrolling in the plan.


Safe Harbor Contribution Notice - For plans with an ADP/ACP safe harbor arrangement

Deliver by: December 1, 2016.

Provide to: Employees who are currently eligible and those who will be eligible to participate in your plan by January 1, 2017.

Planning for 2017: For employees who become eligible after January 1, 2017, the notice should be provided within 90 days before or on the date of eligibility.


Automatic Enrollment Notice - For plans with an automatic contribution arrangement, an eligible automatic contribution arrangement, or a qualified automatic contribution arrangement (i.e., ACA, EACA, or QACA)

Deliver by: December 1, 2016.

Provide to: Employees who are currently eligible and those who will be eligible to participate in your plan by January 1, 2017.

Planning for 2017: For employees who become eligible after January 1, 2017, generally the notice should be delivered at least 30 days before the date of eligibility.


Notice of Default Investment(s) (QDIA Notice) - For plans that offer a Qualified Default Investment Alternative

Delivery date: Annual notice must be delivered by December 1, 2016.

Provide to: Employees who are currently eligible and those who will be eligible to participate in your plan by January 1, 2017, former employees with an account balance, and beneficiary account holders.

Planning for 2017: For employees who become eligible after January 1, 2017, the notice should be delivered at least 30 days prior to the participation date or the date the first investment would be made. Also, provide the notice to employees who request rollover contributions into the plan.


IMPORTANT: Notices can be delivered to plan participants in hard copy format. Electronic delivery is also an option, but you must follow IRS and/or DOL electronic guidelines.