Going Mobile with Retirement Plans

More participants are looking to their phones to learn about retirement plans and saving.

“We’re seeing a shift in the usage of mobile apps [by retirement plan participants], it’s increasing across all demographics,” says Dave Gray, vice president of client experience at Charles Schwab.

“We are seeing that younger folks, under age 35, and those with smaller account balances are engaging more with the mobile apps than with the website.” Mobile technology presents a new way to get participants engaged early and for them to take action and make decisions about saving and investing.

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“We generally find that the use of mobile technology in retirement [planning] has more to do with whether the [individual] user has adopted mobile technology as opposed to an age or generation,” says Scott Parker, a principal at Deloitte Consulting. “We used to think as an industry that mobile was more for Millennials and Gen Y, but have since learned that all age groups are adopting mobile or tablet technology. While the usage may be higher for the younger generation, mobile technology is a growing key to reaching all ages of retirement plan participants.”

Deloitte’s 2015 DC benchmarking study, finds the percentage of participants who have interacted with plan recordkeepers through smartphone and/or tablet applications increased from 26% in 2012 to 40% in 2015.

Gray reports that an interesting statistic Schwab has found is that participants ages 55 and older are looking at their account balance twice as often via a mobile app as on a website. “For older participants, generally speaking, usage is focused on getting access to information,” he says. “The key is that, overall, having the app means they make more frequent inquiries into the retirement plan.”

“Retirement plan participants are using mobile technology primarily to check their account balances and investment performance,” says Parker. “Mobile use is relatively immature in retirement,” he adds, but that is not due to a lack of participant interest but a lack of available technology. “Many retirement providers have either not enabled mobile transactions or don’t have a participant website that renders well on a mobile device. That said, capabilities are quickly growing as the majority of retirement providers are actively working on improving the digital customer experience, which includes a fully transactional, engaging mobile experience for retirement.”

NEXT: Current mobile technology

Corporate Insight tracks 19 defined contribution (DC) retirement plan providers day to day. Twelve of the firms in that group offer a dedicated mobile site, 10 offer a phone app, and six feature tablet-specific apps. “All have your typical data points—plan name, total balance, holding details, some show rate of return,” says Drew Way, a senior analyst in the firm’s Retirement Group. “The better thing we’re seeing is the addition of transactions. Today eight of the 12 mobile sites have at least one transaction”—i.e., single-click enrollment, contribution changes and auto-escalation, investment selection and even complete account rebalances.

“A lot of times you can download a phone app to your tablet,” Way adds. “At a couple of firms, it’s pretty much the same thing; participants have a similar experience across both. Others take advantage of the larger screen and offer a lot more education” in the tablet-specific app.

“Most mobile apps on the market today have been designed for a phone-based device,” Gray continues, but “people behave differently with tablets than with phones.” A tablet-specific program should support the unique user experience, maximizing that device’s expanded capabilities and larger screen. “With phones, there is less rich media content; people expect more interaction via tablet usage,” he says.

Plan sponsors need to make a decision, says George Walper Jr., president of Spectrem Group. Do they want to develop an application (app) for smartphones and/or tablets, a mobile-optimized website, or both? “A number of people like to use apps, some people like to just look at a website,” he says. “Make sure you have the same information available on both.”

“To me, there’s nothing more frustrating than a website telling you to download the app for more information, or an app directing you to the website,” says Walper. Plan sponsors considering a mobile app for their plan participants should ensure that the offering includes at least the basic account data, but participants will appreciate—and likely expect—additional information about the program and for pre-retirees, he adds.

First and foremost, retirement plan mobile apps have to provide participant account information, which most already do, says Way. “Some stand out for having pretty much any piece of data you could want about the account,” he adds, such as rate of return over time or an individual’s holding details. But, transactions are growing in importance, as Way notes a few plan sponsors have a percentage of employees who do not have access to a desktop computer at work, meaning their most convenient—perhaps only—point of account access is via mobile apps.

NEXT: Features to expect

“When we look at mobile apps, we think of it within three core experiences that want to be delivered,” Gray says. “First is creating ease of access for participants; second, give participants tools and information to help them make good decisions; and third, give participants the ability to take action in the moment—meaning the transaction capabilities that we have added to our mobile apps.”

Parker lists several key features sponsors should look for in their mobile applications: “balances, contribution and investment changes, distribution requests, [a] message center, basic retirement readiness tools and text message updates on the member requests—such as the status of a loan or retirement distribution request.”

Some firms have more unique features, Way adds, such as peer comparison tools that show participants how their savings stack up against others in their age group or location. “That gives a different perspective,” he says. “Projections and gap analyses are nice, to see how you fall against your stated goal, but that can fall on deaf ears. A comparison perspective can be motivating, hearing: ‘You’re really lagging behind your age group.’”

Gray believes the “next frontier” of mobile technology will be the creation of personalized, smart communications with participants. “If you think about how people use devices today—to get information, do something while in the app—[participants] expect the app to proactively communicate to them the things they need to know.”

To connect with participants, Walper recommends posting videos, which can be added to applications as well as the retirement plan’s website and social media accounts as part of an integrated participant outreach campaign. “Videos should be two to three minutes in length,” he says. They should not be about products and services, but address the concerns participants worry about in their everyday lives, from paying down debt to saving for a home or their children’s education.

Way anticipates another trend in mobile usage: “We’re starting to see retirement planning tools,” he says, particularly calculators and other features participants can interact with. “They’re not prevalent yet, but they’re coming,” and currently the most common such features provide retirement income projections.

Adds Parker: “Expectations should continue to grow as our marketplace matures with mobile capabilities.”

Participants Sue Allianz Retirement Plan Fiduciaries

A lawsuit filed by two participants in an Allianz retirement plan claims the company and its asset management partners, including PIMCO, misused employees’ 401(k) plan assets for their own financial benefit.

Plaintiffs level a host of complaints against two sets of defendants overseeing the Allianz Asset Management 401(k) plan, suggesting the “total plan cost of 0.77% is outrageously high for a defined contribution plan with over $500 million in assets.”

Named in the complaint are Allianz Asset Management of America (both AAM-LP and AAM-LLC), as well as “the Committee of the Allianz Asset Management of America, L.P. 401(k) Savings and Retirement Plan … [Chief Operating Officer and Managing Director of AAM] John Maney … and John Does 1 to 30 … who improperly managed Plan assets for the benefit of themselves and their affiliates instead of the Plan and its participants.”

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Several participating employers are also named in the complaint. These include: “AAM-LP and AAM-LLC (collectively, ‘AAM’), Allianz Global Investors Fund Management LLC, Pacific Investment Management Company LLC (‘PIMCO’), Allianz Global Investors U.S. LLC, and NFJ Investment Group LLC …  who improperly received plan assets as profits at the expense of the Plan and its participants.”

Lead plaintiffs Aleksandr Urakhchin and Nathan Marfice filed their claim in the U.S. District Court for the Central District of California, seeking an order for Allianz and company “to remedy breaches of fiduciary duties and unlawful self-dealing.” Plaintiffs seek to recover the financial losses suffered by the plan through improper fees and self-dealing, and to obtain injunctive and other equitable relief from the defendants, as provided by ERISA.

Case documents show Urakchin and Marfice accuse defendants of “[treating] the plan as an opportunity to promote the Allianz Family’s mutual fund business and maximize profits at the expense of the Plan and its participants.” The accusations go beyond lax oversight commonly alleged in ERISA cases and suggest proactive self-dealing by defendants.

“The Fiduciary Defendants have loaded the Plan exclusively with mutual funds from the Allianz Family, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies,” the compliant suggests. “The selection of these proprietary mutual funds costs Plan participants millions of dollars in excess fees every year. For example, in 2013, the Plan’s total expenses were 75% higher than the average retirement plan with between $500 million and $1 billion in assets (the Plan had $772 million in assets as of the end of 2013), costing Plan participants over $2.5 million in excess fees in 2013 alone.”

NEXT: Performance and peer plans   

According to the plaintiffs, citing various pieces of industry research, among the 550-plus defined contribution plans in the United States with between $500 million and $1 billion in assets as of the end of 2013, the Allianz plan in question “was one of only eight plans that had total plan costs that were 0.74% (of total plan assets) or higher. The Plan’s high costs can be attributed entirely to the Fiduciary Defendants’ selection of high-cost proprietary mutual funds as investment options within the Plan.”

Finally, plaintiffs suggest the funds were not just expensive, but unproven, and, in some cases, inappropriately risky for a long-term 401(k) plan investor.

Other details in case documents show plaintiff Aleksandr Urakhchin has participated in the plan since 2011, “and is a current participant in the plan within the meaning of 29 U.S.C. §§ 1002(7) and 1132(a)(2)–(3).” Plaintiff Nathan Marfice has participated in the plan “since before 2009, and is a current participant in the plan.” Both are California residents, according to the compliant.

The plan in question was established on January 1, 2003, via the merger “of certain predecessor plans.” These include the PIMCO Savings Plan, the PIMCO Retirement Plan, the NACM 401(k) Plan and the NACM Pension Plan. Prior to 2011, the plan was known as the “Allianz Global Investors of America L.P. 401(k) Savings and Retirement Plan.” It is a defined contribution 401(k) plan within the meaning of 29 U.S.C. § 1002.

According to case documents, the Plan has been amended and restated multiple times since it was established, most recently on October 29, 2012, under oversight of AAM-LLC.

Defendant John Maney, COO and managing director for Allianz Asset Management, is called out by name because “he is the sole member of the management boards of both AAM-LP and AAM-LLC.” Maney is also the CEO of defendant Allianz Global Investors Fund Management LLC and the managing director of Defendant Allianz Global Investors U.S. LLC.

According to the complaint, Maney “signed the Plan Document in his capacity as Managing Director and Chief Operating Officer of AAM. By virtue of his management and Board positions at AAM-LP and AAM-LLC, Maney has authority to appoint a recordkeeper and trustee, amend the Plan Document, and appoint and remove members of the Committee. This gives Maney discretionary authority and control over the administration and management of the Plan as well as discretionary control and authority regarding the management and disposition of Plan assets … Accordingly, Maney is a Plan fiduciary under 29 U.S.C. § 1002(21)(A).”

NEXT: Target-rich environment 

The complaint further alleges each of the fiduciary defendants “are also "subject to co-fiduciary liability" under 29 U.S.C. § 1105(a)(1)–(3), because they enabled other fiduciaries to commit breaches of fiduciary duties through their appointment powers, failed to comply with 29 U.S.C. § 1104(a)(1) in the administration of their duties, and failed to remedy other fiduciaries’ breaches of their duties, despite having knowledge of the breaches.”

PIMCO is cited as “a Plan employer within the meaning of 29 U.S.C. § 1002(5),” because it acts as the investment adviser for 23 of the investment options offered within the plan. According to the complaint, throughout the statutory period, the only core investment options offered within the plan have been investments managed by either PIMCO or Allianz Global Investors, both of which are subsidiaries of AAM.

By 2013, plan participants were offered 45 proprietary mutual funds, two proprietary collective trust funds, and a self-directed brokerage account option. The core investment options consisted of 12 target-date funds, six balanced funds, 12 domestic equity funds, five global/international equity funds, six domestic bond funds, two international bond funds, and four specialty funds in technology, currency, commodities, and real estate. By the end of that year assets had increased to approximately $772 million, consisting of $628 million in proprietary mutual funds, $44 million in proprietary collective trust funds, $93 million in SDBAs, and $7 million in plan participant loan liabilities.

Taking into account all administrative and investment expenses within the plan, and using 2013 year-end balances (as reported on Form 5500 for 2013) and publicly available information regarding each investment’s expenses, plaintiffs estimate that “total plan costs for 2013 were approximately $5,950,000, equal to 0.77% of the $772 million in Plan assets.”

Plaintiffs suggest this fee level “is outrageously high for a defined contribution plan with over $500 million in assets,” suggesting the “average fee” for this segment is closer to 0.44%. “Forty-three of the 45 proprietary mutual funds within the Plan in 2013 had expenses that were above the average for plans with between $500 million and $1 billion in assets, and many of those funds had expenses that were two to three times higher than the average for similarly-sized plans.”

NEXT: Seeding new funds through 401(k)?

According to the complaint, the defendants’ alleged imprudence in selecting unreasonably expensive funds is not the result of mere negligence.

“Rather, the Fiduciary Defendants intentionally exposed Plan participants to unreasonably high fees because doing so significantly benefited the Allianz Family. This is perhaps best illustrated by the Fiduciary Defendants’ improper use of the Plan to promote new and untested mutual funds for the purpose of furthering the Allianz Family’s mutual fund business.”

A variety of PIMCO-provided investment funds and series are named in the complaint, including target-date funds. Defendants suggest the competitive pressures of the investing industry drove plan fiduciaries to include new and untested investment products on retirement plan menus, in essence to help Allianz and PIMCO turn profits more quickly from new and developing funds.

The compliant goes as far as accusing PIMCO/Allianz of conspiring to use the plan’s qualified default investment alternative (QDIA) slot to “to funnel plan assets into untested funds.”

Allianz, PIMCO’s parent company, shared the following statement with PLANSPONSOR: “Allianz Asset Management, PIMCO and Allianz Global Investors offer employees a wide range of investment options to save for retirement and provide plan participants the flexibility to elect to invest in affiliated and non-affiliated investment products. Our 401(k) plan has been administered in accordance with applicable rules for the benefit of our participants. The action is without merit; we are confident it will be resolved accordingly.”

A full copy of the complaint is here

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