This is one of my favorite—though one of the craziest—times at PLANSPONSOR. The beginning of our year is awards season, and there are many moving parts to ensure that everything is rolled out appropriately. It’s a wonderful season for all of us on the staff because we get to spend more time than usual talking to plan sponsors and getting exposed to ideas and innovations we might not yet be aware of.
One thing that stood out to those of us judging the Plan Sponsor of the Year Awards, this year in particular, was a difference in tone between nominations and entries. Many of the nominations discussed how remarkable the plan sponsors are. The nominators—mostly providers and advisers—were comparing these plan sponsors with their other clients and/or their clients’ peers, and recognizing, for instance, how unusual some of the plan design elements might be or how rare is the nominee’s generosity. Yet, when plan sponsors were asked to complete their actual entry, they were modest in their self-description. So modest sometimes that it seemed as if the nominator and the entrant were writing about two different plans!
What the other judges and I came to understand was that the plan sponsors often don’t realize how what they are doing is unique or special. Whether it’s the generosity of the sponsor—in terms of crafting matches or nonelective contributions or both; or the plan design elements that recognize the unique participant and employee demographics—such as ensuring mobile delivery for those with no computers beyond their phones or ensuring all employee languages are covered; or looking out for participants who are no longer employees—e.g., allowing them to pay off plan loans to prevent defaults.
Across our Plan Sponsors of the Year finalists and our Best in Class 401(k) plans, which also are featured in this issue, there are many best practices in play. Something you might be surprised about—the plan sponsors that take part in our award programs likely don’t have the cheapest plans; nor should they. What they do offer are incredibly valuable plans.
Why focus on costs? Is it about simply paying the least for a minimum product? Or is there a conscious decision to focus on the value being received? Those who focus on value might have a plan that looks more expensive in terms of plan administration, but it includes services that improve outcomes—making the costs reasonable. Which is what ERISA [Employee Retirement Income Security Act] requires, after all, reasonable—not cheap.
The focus on costs, and who is paying what, usually stresses the effect that high fees—either for administration or investment—can have on someone’s lifetime savings. When talking about investments, yes, it’s difficult to argue that plan sponsors shouldn’t be proactive about ensuring they stay aware of the costs and have worked to make cheaper investment shares available to plan participants. After all, investment fees do take away from returns and can, therefore, add up. But when you look at how those fees affect someone’s ability to retire, I find it doubtful that 10 to 20 basis points (bps) of investment cost is what will keep someone from saving if that person was a conscientious saver, deferring the appropriate amounts of money throughout his career. And that’s where plan design and administration come in.
What the plan sponsors in our awards programs recognize is that outcomes matter. At the end of the day, these sponsors realize that a “cheapest is best” focus probably runs counter to improving retirement security—which is, after all, more than just the accumulation side of the equation. Good outcomes requires meetings, advice or targeted communications, and plan designs that can help participants optimize their savings—all of which may cost money. Plan sponsors realize that for plans to be successful at creating retirement savings, a bare bones, minimalist payroll deferral account will unlikely be sufficient.
And if retirement success requires all of us to improve the retirement plan and planning concepts and create engaging holistic education programs, those aren’t free either.
The best plan sponsors help their participants understand their plan and the incredible value it offers, providing tools and services and effective engagement programs so that participants can’t later say they are underprepared because no one told them how much to save or showed them a projection of retirement income. Those plan sponsors understand that the value of being prepared for retirement is much greater than the cost of learning about it.