401(k) sponsors in the dark about cognitive decline

Retirement plan fiduciaries often have limited resources and little information when it comes to plan participants with dementia or other cognitive decline — but that could change.

Last month, a Department of Labor advisory council compiled a wealth of testimony on the challenges that plan sponsors, advisers, record keepers and others face in identifying retirement savers’ cognitive decline and what options they have when they suspect it.

The report, made to the DOL’s Employee Benefits Security Administration, included several recommendations for the regulator. Notably, the board encouraged the DOL to issue guidance for plan fiduciaries to voluntarily establish their own policies and procedures on the topic, such as restricting account access when they suspect a participant is a victim of financial exploitation or has become incapable of making sound financial decisions. That guidance could also mean encouraging plan participants to name a trusted person by granting them power of attorney.

More broadly, the DOL could launch public outreach and education programs, both for the public and for plan sponsors.


The Securities and Exchange Commission, Financial Industry Regulatory Authority Inc. and Social Security Administration have policies and procedures on the subject, which the DOL will likely evaluate in drafting any guidance it would issue.

“However, we also found that the ERISA community, in general, is not certain as to the role they should play in addressing the issue. We found that there are no best practices, standards or easily found or widely disseminated guidance about these practices,” according to the advisory council report.

A related issue is that plan sponsors run into problems tracking former employees who remain in the company’s retirement plan. If employers don’t have current contact information for separated workers, they may have to resort to contacting next of kin or reaching out on social media to let the account holders know about their accounts, when they must take required minimum distributions and other issues.

The DOL issued guidance on that topic last week.

With an aging demographic that is increasingly reliant on retirement assets from defined-contribution plans, instances of elder abuse and fraud could become more common.

As of mid-2019, about 16.5% of the U.S. population, or more than 54 million people, is 65 or older — but that is on track to increase by 44%, to nearly 81 million people by 2040, according to U.S. Census data cited in the report.

“While there is still a pronounced effect where participants in defined-contribution plans tend to leave the plan upon retirement/termination — for example, 22% of individuals age 60 and older keep retirement assets in their former employer’s plans — the percentage who take a withdrawal within one year of termination has been declining,” according to the advisory council report.

Further, advanced planning is still not the norm, with nearly 60% of adult children reportedly becoming caregivers for their parents without a plan and about 10% of older Americans annually become victims of some type of abuse or neglect, according to the report.


Data provided to the advisory council by Fidelity Investments showed a 23% increase in cases of “diminished [mental] capacity and financial exploitation” in 2019 among about 22,000 retirement plans in the company’s book of business. That company projects a 27% having taken place in 2020, according to the report.

And which party bears responsibility for noticing and addressing those issues among participants is a question.

“There is significant outsourcing within the defined-contribution space, and 40% to 50% of plan sponsors do not have direct contact with separated or retired participants,” according to the report, which cited data from the Defined Contribution Institutional Investment Association. “This is a task that is commonly delegated to the record keeper, and there can be a lack of clarity regarding who has the fiduciary duty to separated and retired participants.”

A small survey DCIIA conducted of large employers found that most plan sponsors, 70%, have no idea how common cognitive decline is among their retired workers, and 11% said they were unaware of any such cases, according to the report. Most employers said the issue is a low priority and have had no discussions about addressing it, even while 53% indicated they were unsure about their fiduciary responsibility around the subject, the DCIIA data shows. A quarter of plan sponsors said they have no fiduciary responsibility related to helping participants who are experiencing cognitive decline, though 22% said they do have such an obligation.


Like many, if not most financial services firms, Fidelity trains its staff to identify cases in which participants are showing diminished mental capacity. In that firm’s comments to the advisory council, it noted that staff look for participants showing confusion with simple tasks, asking to repeat questions or instructions, showing a dramatic change in investment strategy, memory loss, health issues, notable changes in trading, confusion about their account balances, requests to add people to their accounts and other issues.

The Consumer Financial Protection Bureau cited instances that can pinpoint potential problems, including accounts in which money is missing, sudden spending changes, requests for large wire transfers, heavy ATM use, new difficulty paying bills, new names on accounts and changes in beneficiaries.

One consultant testifying for the council, Anna Rappaport, suggested that employers integrate cognitive-decline planning into their programs, including company retirement plans and financial wellness.

For example, employers could provide education to employees about the issue, including information about long-term care and offer access to prepaid legal programs, Rappaport said. Further, employers should consider supporting caregivers through flexible work arrangements, stress management and employee assistance programs, according to the report.

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