The Rundown

• Increase in hardship withdrawals may have slowed.
• Retail investment penetration at credit unions, banks stillat less than 1%.
• Rethinking of the standard 401(k) plan being considered inrecession's aftermath.

Turn the clock back a few years and the scene at some companieswent one of two ways.

Matching contributions to employee 401(k) plans had either beenscaled way back or completely eliminated as firms looked for waysto rehydrate dry revenue streams to weather the Great Recessionyears of 2008 and 2009.

Faced with furloughs, unemployment, rising debts andforeclosures, some members at credit unions may have had to makehardship withdrawals from their 401(k)s and other retirement plans.According to the IRS, hardship is defined as immediate and heavyand includes having trouble paying off certain medical expenses,payments to prevent eviction or foreclosure and funeral costs.

After several years of hunkering down, industry anecdotes showthat some companies have resumed their retirement plan matching contributions programs. While thenational unemployment figure continues to hover around 8%, thehousing market is starting to show signs that first-time shoppersmay be looking to buy homes as lenders began raising rates again.The same shift can be seen in auto lending as potential borrowersseek out late-year models and new cars to replace their decade-oldvehicles.

“The post-financial crisis era has produced mixed results for401(k) participants,” said Scott Knapp, director of investmentstrategy for CUNA Mutual Group. “The increase in hardshipwithdrawals and loans from 401(k) plans has also slowed. Financialmarkets have nearly recovered losses sustained in the wake of thefinancial crisis, leading to rising account balances for someparticipants.”

When financial markets were in free fall a few years ago, manyparticipants transferred assets out of stocks and bonds and intolower-yielding guaranteed accounts, Knapp said. As a result, theymissed the recovery, he offered.

“Indeed, they were aggressive when they should have beencautious and cautious when they should have been aggressive,” Knappsaid. “This behavior is highly predictable in all marketenvironments. The financial crisis just magnified its negativeimpact.”

It didn't take a recession to show that credit unions and otherfinancial institutions may not be the top source for members andcustomers who are looking for help with their long-term financialdecisions. According to a new report from the Consumer Federation of America and Primerica Inc., adistributor of financial products to middle-income families, 17% ofthe 2,015 American surveyed said they would just make their owndecisions without seeking any information or advice. Fifteenpercent said they would turn to the Internet, publications, orTV.

That same survey showed that middle-class Americans, which aredescribed as those with household incomes between $30,000 and$100,000, were more risk-averse compared to those with incomes overthe top end of that threshold. If given $1 million to invest forretirement, 21% said they would invest mainly in a combination ofstocks, bonds, or mutual funds. Nineteen percent would choosesavings accounts while 25% would invest mainly in real estate.

CFA Executive Director Stephen Brobeck said the researchers weresurprised at how infrequently respondents relied on informationfrom the Internet and publications.

While credit unions and banks are offering investment andinsurance products to capture the financial advice business ofexisting customers, how well are they achieving that objective?Kehrer Saltzman & Associates, a Waxhaw, N.C.-based wealthmanagement consulting firm, wanted to find out. Roughly 12.7% ofU.S. households reported that they had purchased an investment orinsurance product at their primary bank or credit union.

Since the typical financial institution offering investmentservices has been doing so for 14 or 15 years, this cross sellratio suggests that banks and credit unions have been penetratingless than one percent of their customer base per year, the firmnoted.

Of the households who have purchased an investment or insuranceproduct at their primary bank, 55% or 7% of U.S. households hadpurchased only one investment and insurance product there.

The remaining 45% or 5.7% purchased more than a singleinvestment or insurance product from a bank and might be consideredto have established a financial advice relationship with their primary financialinstitution, according to Kehrer Saltzman.

While the cross-sell ratio of 45% for building an investmentrelationship is substantially higher than the 12.7% cross sellratio for the initial product sale, banks have nonethelessdeveloped an investment or insurance relationship with fewer thanone in every 18 of the client households that view them as theirprimary banking institution.

Meanwhile, the retirement plan industry is rethinking thestandard 401(k) plan in the aftermath of the financial crisis,Knapp said. One emerging innovation is the creation of definedbenefit plan characteristics in 401(k) plans. Specifically, theyare starting to be viewed as personal defined benefit plans thatmake achievement of reliable income replacement during retirementthe plan's ultimate objective, he explained. Sophisticatedactuarial and asset/liability management strategies are nowstarting to find their way into 401(k) plans.

“The goal is to create greater confidence in 401(k)participants' outcomes without transferring investment risk to theemployer like a defined benefit plan does. This approach helps makesuccess less contingent on an endlessly rising stock market,” Knappsaid.