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Plan Health Not Just About Fees and Investments

Two providers have introduced retirement plan health measurement tools with different approaches.

By Rebecca Moore editors@plansponsor.com | May 16, 2017
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Financial wellness is top of mind for many defined contribution (DC) plan sponsors, and in a paper, Prudential Retirement explores the relationship between financial wellness and retirement plan health.

The firm hopes to provide a framework for sponsors and their advisers to evaluate their plan health with a focus on balancing participant outcomes and cost efficiency. As the paper says, “How can individuals be expected to achieve financial wellness if the primary retirement savings vehicle, the defined contribution plan, is either poorly designed or inefficient?”

Snezana Zlatar, senior vice president, Full Service Solutions Product and Financial Wellness, Prudential Retirement, who is based in Woodbridge, New Jersey, notes there is a clear connection between employee financial wellness and engagement and productivity in the workplace. While at work, employees are spending time managing finances. Those who do not feel financially well tend to get more health issues and dip into retirement savings early and delay retirement. “All these elements cost employers,” Zlater says, “so optimizing benefits and optimizing talent management is what matters.”

According to Prudential’s paper, in evaluating their DC plans, sponsors and their advisers may consider a framework that includes three key elements of plan wellness—responsiveness to industry trends, optimization of plan design, and suitability of investment options. Staying on top of trends that relate to DC plans will help sponsors adapt to an environment that is subject to changing regulations, increasing litigation, and increasing fee pressures, the paper suggests.

“Plan sponsors should take into account future trends if they truly want to think strategically about benefits strategy and long-term goals,” Zlatar says.

She adds that Prudential believes ways to improve plan health include strengthening participation and savings as well as determining retirement-age projections for employees. “Complementary to this is to look at the broader issue of financial wellness. Understand where employees stand and connect the two to figure out the best benefit plan design and the best combination of tools that would be helpful to employees,” Zlatar says.

ForUsAll Head of Marketing, Healy Jones, who is based in San Francisco, agrees plan health measures are important because obviously, DC plan sponsors take on a lot of liability and fiduciary responsibility and have a duty to participants to provide a healthy plan. “There’s a lot of attention to plan health now due to the Department of Labor (DOL) fiduciary rule. Maybe some providers are earning commissions and should not,” he says.

In addition, plan sponsors are thinking about their Form 5500 filing. In this respect, plan health is about more than fees and investments—it’s also about compliance, according to Jones. “We find some [plan sponsors] are doing a wonderful job of focusing on fees and investments, but they are not focused on compliance and need help.”

Jones says to improve plan health, things plan sponsors should do include:

  • Benchmark where you stand with core pieces of the plan; make sure investments are performing well and the fund lineup is appropriate for participants, and make sure the fees you are paying to investment funds and providers are in line with averages;
  • Make sure compliance and administration is done correctly with the Internal Revenue Service (IRS), Department of Labor (DOL) and Securities and Exchange Commission (SEC); and
  • Make sure the plan is designed in a way employees and employers are taking advantage of tax savings.
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