401(k) Contributions from Cash Back

[PensionPro]

There was a recent NAPA article ( http://www.napa-net.org/news/managing-a-pr...r-opener-ever/) which cited big names such as Brian Graff, James Holland, Bruce Ashton, Dallas Salisbury, etc. The idea is that an online retail portal called Savernation would convert cash back rebate on purchases to pre-tax 401(k) or IRA contributions.

Anyone heard of this concept or know how this works? Thanks.

[MoJo]

There was a recent NAPA article ( http://www.napa-net.org/news/managing-a-pr...r-opener-ever/) which cited big names such as Brian Graff, James Holland, Bruce Ashton, Dallas Salisbury, etc. The idea is that an online retail portal called Savernation would convert cash back rebate on purchases to pre-tax 401(k) or IRA contributions.

Anyone heard of this concept or know how this works? Thanks.

The cash back is *not* turned into pre-tax contributions. What happens is, when you make a purchase that qualifies you for a rebate, savernaton accesses your 401(k) deferral "system" to increase your deferral by the amount of the rebate. The rebate is deposited into your checking account - and that deposit "offsets" the increase in your deferral amount. It's a simple (or not so simple) way to increase your deferrals in an amount that should be painless because it is offset by the rebate. Of course, you have to spend money to generate the rebate to begin with.

[PensionPro]

There was a recent NAPA article ( http://www.napa-net.org/news/managing-a-pr...r-opener-ever/) which cited big names such as Brian Graff, James Holland, Bruce Ashton, Dallas Salisbury, etc. The idea is that an online retail portal called Savernation would convert cash back rebate on purchases to pre-tax 401(k) or IRA contributions.

Anyone heard of this concept or know how this works? Thanks.

The cash back is *not* turned into pre-tax contributions. What happens is, when you make a purchase that qualifies you for a rebate, savernaton accesses your 401(k) deferral "system" to increase your deferral by the amount of the rebate. The rebate is deposited into your checking account - and that deposit "offsets" the increase in your deferral amount. It's a simple (or not so simple) way to increase your deferrals in an amount that should be painless because it is offset by the rebate. Of course, you have to spend money to generate the rebate to begin with.

Thanks for the explanation. The marketing language threw me off a little: "SaverNation gives employees cash back for their normal monthly purchases and automatically converts it to extra pre-tax 401(k) contributions."

[masteff]

They've simply duplicated UPromise which puts the savings towards 529 plans or GoodSearch which puts the savings toward charitable causes (or several dozen other sites like them). All they're doing is using affiliate shopping codes to get money back from websites. They pocket some of it and give the shopper the rest.

IMO, it's just another marketing gimmick for payroll companies.

I seriously wonder how much they paid for the use of the "big names".

[MoJo]

The marketing language threw me off a little: "SaverNation gives employees cash back for their normal monthly purchases and automatically converts it to extra pre-tax 401(k) contributions."

Gotta love "marketing" language....

We looked into it to see if there was any traction. So far, we"re "waiting".

[PensionPro]

MoJo - since you/your firm looked at this concept - were any concerns raised regarding fiduciary duties or the existence of improper compensation arrangements? Thanks for any words of wisdom!

[MoJo]

MoJo - since you/your firm looked at this concept - were any concerns raised regarding fiduciary duties or the existence of improper compensation arrangements? Thanks for any words of wisdom!

The concerns I raised (and this was just brainstorming) were: 1) what liability/issues/responsibility is there in turning over authority to a third party to effect changes in salary deferral amounts (i.e. someone else has control over a payroll function affecting deferral amounts????); 2) what controls are in place to ensure that the amounts deferred did not exceed plan limits (and my understanding is that there is an "amendment" required to your plan that authorizes everything - which as well raises concerns), or regulatory limits (402(g), deductibility limits, etc.), and 3) does the use of this type of service in any way shape or form limit the service providers that a fiduciary may select from (i.e., well, there are a limited number of payroll providers - but that isn't necessarily a fiduciary decisions - but I could argue it is..., but other service providers may be impacted as well - see below).

It also has some practical issues that I haven't gotten answers to either. Since the "savernation deferral" is as "flat dollar" deferral, does it require that the participant participating have only flat dollar deferrals (that is, if someone is currently deferring 5%, do they have to change that to $250 so that the rebate amounts can be an increase to that amount, or can someone still defer 5% and have another $50 or whatever added to that amount? If the former, then might that not actually reduce deferrals when bonuses, pay raises, etc. come around?). What are the timing standards for deposits of rebates (i.e. does it match or precede the deferral payroll date? Anything after the payroll date means a "shortfall" to the participant, albeit temporary (but try to explain that to a typical participant)).

Finally, the whole concept ENCOURAGES spending as a way to increase savings. Long term, that would be counter-productive, and contrary to what we've been preaching about "budgeting" for the long haul....

Just my two cents worth....

[PensionPro]

Firstly, to me this arrangement seems to primarily benefit SaverNation and its agents. The benefit to the employee is questionable. Most online purchases come with some form of rebate esp if you are a smart shopper. This does encourage the concept of spending to save. It might be a fiduciary issue if Savernation's cashback rebate levels were not competitive. Who is going to monitor this? Essentially the plan is indirectly recommending that employees shop at SaverNation rather than other online retailers.

Secondly, how much is the plan being compensated for providing this type of marketing access? Would a similarly situated entity be compensated for providing exclusive access to a group of employees/consumers?

Thirdly, would it be a BRF discrimination issue if the type of industry resulted in an inordinate number of HCEs using this feature?

Fourthly, there is a deferral timing issue. If the plan only allows quarterly changes then the deferral increases would need to be accumulated for each quarter. Practically speaking there may be recordkeeping issues.

Just thinking out loud but it seems to create additional fiduciary duties.

[MoJo]

Firstly, to me this arrangement seems to primarily benefit SaverNation and its agents. The benefit to the employee is questionable. Most online purchases come with some form of rebate esp if you are a smart shopper. This does encourage the concept of spending to save. It might be a fiduciary issue if Savernation's cashback rebate levels were not competitive. Who is going to monitor this? Essentially the plan is indirectly recommending that employees shop at SaverNation rather than other online retailers.

Secondly, how much is the plan being compensated for providing this type of marketing access? Would a similarly situated entity be compensated for providing exclusive access to a group of employees/consumers?

Thirdly, would it be a BRF discrimination issue if the type of industry resulted in an inordinate number of HCEs using this feature?

Fourthly, there is a deferral timing issue. If the plan only allows quarterly changes then the deferral increases would need to be accumulated for each quarter. Practically speaking there may be recordkeeping issues.

Just thinking out loud but it seems to create additional fiduciary duties.

While I agree with your concerns (and your assessment), keep in mind three things. First, the plan *is* required to adopt the "savernation" amendment which resolves (in their mind) the plan design issue. Second, what savernation does is wholly independent of the plan, except for having access to the salary deferral change mechanism to increase a participant's deferral by the amount of expected rebates. The rebate mechanism, the ability to get a rebate, etc. is "outside" of ERISA, so whether or not HCEs use the feature or not is irrelevant - except that it may impact the ADP results (which could happen in any event). Finally, the employer's recommendation of any particular on-line retailer is different than the plan making the recommendation - which it doesn't. As indicated in my "second" point, the plan has *nothing* to do with the arrangement, except to accept the salary deferral change request from savernation as agent of the participant. My employer already recommends certain vendors through the selection of health and welfare plans, supplemental insurance programs and employee discounts.

Just playing devil's advocate, along with throwing in another two cents worth.

[shERPA]

I was at a presentation on this back in February. For reasons MoJo states, I really don't see any compliance concerns here, this is just a mechanism for employees to increase their deferral election. There is nothing that says a deferral must be X% of pay or $Y flat amount. The deferral can be either of these plus the amount reported by Savernation.

My concern is that there is just so much data that must be tracked dealing with relatively small dollar amounts, and then this data must be compiled and reported back to payroll. There are a lot of moving pieces, I don't see how there is enough juice in the whole process to make it profitable.

As to encouraging spending to "save", it's really no different than coupons or rebates. If you use them to get a discount on the stuff you would normally buy, you save. If instead you buy something you don't need or otherwise would not have bought just because there is a coupon or other rebate, you're not saving. It doesn't do anything for employees they cannot already do themselves, but lots of people will intentionally over-withhold their income taxes as a forced savings, others will pay a service to help them pay down their mortgage (when they could do the same by just making an extra payment each year), etc. 401(k) itself trades on the same theme. Many people are not financially disciplined and can't or won't save on their own, thereby creating opportunities for these sorts of services to help them by making savings automatic.

If Savernation works, that's great, more power to them and some participants will retire with somewhat higher 401(k) balances.

[rcline46]

Hmm, what about plans that match on a per pay basis, or the non-elective SH? Since this money does not go through the normal payroll channels who will figure that out?

[MoJo]

Hmm, what about plans that match on a per pay basis, or the non-elective SH? Since this money does not go through the normal payroll channels who will figure that out?

The money *does* go through the normal payroll channels. Only wages/salaries are deferred into the plan. The ONLY thing Savernation does is to alter the deferral rate/amount. The rebates NEVER enter the plan - but are simply deposited into the participant's account (presumably the same one their salary is deposited into) so that it "offsets" at the participant's checking account level the additional amount that is deferred into the plan.

[Peanut Butter Man]

This is the part I'm not understanding - if the participant shops, and a percentage of what they spend is used to offset the amount of their deferral, does the amount of the offset go up or down, depending on how much they spend shopping. If someone could give an example using math, it would help me out.

Most of our 401(k) plans are on prototype documents. If we adopt the Savernation amendment, will this turn the plan individually designed? Has the IRS blessed the amendment, or are we going to need a determination letter?

Since ASPPA (Brian Graff) has blessed this, does ASPPA have an ASAP about this yet?

[Bird]

Since ASPPA (Brian Graff) has blessed this, does ASPPA have an ASAP about this yet?

I'm not sure if ASPPA has blessed this, although I did see Brian's name in there somewhere. I'm on the asap committee and this thread is the first I've heard of it. But we wouldn't necessarily know of a topic until a day or two before anyway.

FWIW I think it is crap. Someone is trying to siphon off a few pennies from everyone else.

[MoJo]

This is the part I'm not understanding - if the participant shops, and a percentage of what they spend is used to offset the amount of their deferral, does the amount of the offset go up or down, depending on how much they spend shopping. If someone could give an example using math, it would help me out.

Most of our 401(k) plans are on prototype documents. If we adopt the Savernation amendment, will this turn the plan individually designed? Has the IRS blessed the amendment, or are we going to need a determination letter?

Since ASPPA (Brian Graff) has blessed this, does ASPPA have an ASAP about this yet?

Yes, if this is implemented, the amount of salary deferal will change, literally constantly. If in month one, you spend $500, generating a $50 rebate, then savernation will access your salary deferral change mechanism, and increase your deferals by $50 for that month only. If during the next month, you spend ZIP, the deferal will be reset to ZIP. If in month 3 you spend $250 generating a rebate of $27.50, your deferal will be increased for that month by $27.50.

I assume, that these changes are over and above your "normal" salary deferal amounts - so if you are contributing $300 per month regularly, in month 1, that would go to $350, in month 2, it would be $300, and in month 3 it would be $327.50. I also assume that the whole thing only works with "flat dollar" salary deferals, as adding a flat dollar on top of a percentage deferal would confuse even the most sophisticated payroll provider.

Keep in mind, what goes in the plan comes out of pay (regular salary deferals) and the rebate simply goes into your checking account, theoretuically so that you net "take home" (salary after deferals PLUS rebates) is the same as if you didn't participate in savernation. Theoretically.... There are more complex tax calculations involved here.

[masteff]

I find it telling that searches on the ASPPA and the APA websites find zero results on savernation despite individuals from both groups being listed on the savernation website

http://www.asppa.org/sp/Search.aspx?SearchPhrase=savernation

http://www.americanpayroll.org/search-result/?q=savernation

[K2retire]

I am normally a huge fan of reward cards, rebates coupons, etc. While it is clear that something needs to be done to increase most employees' deferral rates, the possibility for errors seems far greater than the possible rewards. For example, if a computer glitch misses a change for one pay period, what sort of liability has been created for a correction?

[PensionPro]

What about returns and exchanges? Let's say salary deferral increased by SaverNation by $50 in December. Employee returns the purchase for a credit. Does SaverNation then REDUCE deferrals by $50 in January of following year? And what if employee terminated by then?

Or if SaverNation is going to wait till the return period has expired what if the employee terminates before the deferral increase is processed?

Also curious about the amendment. Is it a model amendment and who pays for the cost of amending the plan - SaverNation or employer?

Something substantial from ASPPA such as an ASAP would be in order since according to the article, SaverNation advisory board member, ASPPA’s Brian Graff, echoes that: “In an era of cutbacks and freezes, SaverNation provides a no-fee way to provide real value to employers. I encourage everyone to try it, because it really works.”

[masteff]

It took me a bit to figure out where they hid some of the details.... their terms of use do address some of these questions: https://www.savernation.org/o/terms-of-use/savernation-32

[shERPA]

MoJo's got it. There are no plan corrections involved if Savernation fails to do its thing. A participant is electing to defer to the plan, from their own wages, their regular 401(k) deferral plus whatever amount is reported to the employer (or payroll company) from Savernation.

If Savernation fails to transmit the information to payroll, then the participant gets the rebate in their checking account so they are not out anything, they just didn't increase their deferral. If Savernation doesn't properly credit a person with a rebate, that is between the person individually and Savernation, just like a credit card rewards program error, but it doesn't impact the plan.

Now if payroll or the employer does not increase the deferral by the amount reported to them by Savernation, this could be a plan compliance issue by not following the employee's deferral election to increase their deferral by the amount reported by Savernation.

Again, I think it works, I just don't see how all the recordkeeping expense is justified for such tiny amounts.

[Bird]

Something substantial from ASPPA such as an ASAP would be in order since according to the article, SaverNation advisory board member, ASPPA’s Brian Graff, echoes that: “In an era of cutbacks and freezes, SaverNation provides a no-fee way to provide real value to employers. I encourage everyone to try it, because it really works.”

As noted, I don't think ASPPA has endorsed it. I don't know if putting "ASPPA's" in front of "Brian Graff" was sloppy reporting and editing, or intentionally misleading (and I believe they are the only two choices), but I don't think much of the source of this (NAPA Net). It's like People magazine but not entertaining.