Deals and People April 10, 2015

Initiative Seeks to Help Participants Investigate Retirement Plans

A former SEC attorney says retirement plan participant lawsuits don’t benefit anyone, and he has launched a new initiative designed to hold plan sponsors accountable for their actions.
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At the beginning of my conversation with Edward “Ted” Siedle, founder and president of Benchmark Financial Services, and a former Securities and Exchange Commission (SEC) attorney, based in Ocean Ridge, Florida, he was ruminating about an article in the New York Times concerning fees of New York City pension funds.

According to that article, an analysis by City Comptroller Scott M. Stringer “concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return.” Stringer said the pension funds have traditionally reported the performance of many of their investments without taking the fees paid to money managers into account. After factoring in those fees, his staff found the fees have dragged net returns $2.5 billion below expectations over the last 10 years, the newspaper said. Stringer noted in his report that the reason why the trustees of the funds would not have performed those calculations in the past is not clear.

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“Not clear?” Siedle says. “How can this board after 10 years not know massive fees have cast doubt on employees’ ability to retire and called into question the city’s entire investment program over decades? Taxpayers and plan participants may want to know.”

It is just this type of scenario that Siedle has been dedicated to combating with his forensic investigations of retirement plans over the years—he has performed more than $1 trillion in forensic investigations during his career. He tells PLANSPONSOR he uncovered hidden fees in the pension programs in the state of North Carolina and the state of Rhode Island pension systems. If you’re a public pension plan sponsor, you should look over your shoulder for Siedle.

But, it’s not just public pensions he’s investigated. Corporate pension, 401(k), 457 and 403(b) plan sponsors take heed: Siedle wants you held accountable too.

“All plan sponsors have a fiduciary duty to monitor fees,” Siedle says. “These investigations need to be done today more than ever due to the explosion of fee opacity in past years. There’s more to investigate now than ever in the history of our country.”

Groups, unions, cities, counties and state attorneys general hire Siedle to do investigations all the time, but plan participants couldn’t afford to do them, so Siedle set out to remedy that. “For every investigation I’ve done for a group or moneyed client, I’ve gotten calls from individual participants also having concerns about their retirement plans and I’ve had to say there’s nothing I can do for them unless they can come up with the money for an investigation. I’ve taken great note of recent crowdfunding efforts, and the confluence of those two gave me the idea for my initiative."

Siedle’s initiative is the Investigate My Retirement Plan website. The website says, “Let’s build a new retirement plan paradigm—where workers and stakeholders have a voice.”

According to Siedle, if his idea catches on, it will be the first time that participants can get an expert, independent second opinion about their retirement plan. If a participant thinks her fund is a proper candidate for an investigation, she can call Siedle, and if he agrees he can do a high-impact investigation on a budget that is acceptable, he’ll start a campaign on Kickstarter to raise the necessary funds. If Siedle decides he won’t be able to get enough information or the investigation will cost way more than what can logically be raised, he won’t start a campaign.

The first-ever effort to crowdfund an investigation of a state pension—Rhode Island's—has begun. Siedle feels the price of an investigation should be in the neighborhood of $25 per participant, but on Kickstarter they can contribute anywhere from $1 to $1,000. “Our thought is, what would you as an employee of [x or y employer] be able to afford—probably the cost of a dinner,” he says. If the money cannot be raised in the specified time period on Kickstarter, the investigation will not happen.

According to the Investigate My Retirement Plan website, “Greater transparency, lower cost and better performance is our goal.” Siedle notes that the alternative for participants who want to call out plan sponsors is lawsuits—something plan sponsors want to avoid for obvious reasons. He contends participants who discover a fiduciary breach too late never get their money back.

Lawsuits also may not result in improved processes or continued plan sponsor accountability. Reports of Siedle’s investigations will be given to plan sponsors, posted on the Investigate My Retirement Plan website, and given to media and the participants in the plan. He says the reports are intended for public distribution and written in professional, expert, defensible language. “We’re not casting grenades; we’re just saying, this is what we found.”

Siedle wants his effort to lead to annual checkups or regularly scheduled second opinions for retirement plans that are independent from the plan sponsor. “[Plan sponsors] should realize that two years from now, we’ll be back to look at changes they’ve implemented,” he says. “If this works, it should result in plan sponsors not only being concerned that what they’re doing can be investigated by the public, but that they will continue to be monitored by the public.”

Products April 10, 2015

Is Auto-Portability the Next Big Thing?

Retirement Clearinghouse has a new approach to stopping plan leakage.
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Retirement Clearinghouse (RCH) hopes it newest service innovation will have as big of an impact on retirement plan participant outcomes as the introduction of auto-enrollment.

In 2007, one of RCH’s clients asked that a voluntary benefit be put in place for new hires, to help them automatically roll their money into the plan. 

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“That’s when the lightbulb went off,” says Spencer Williams, president and CEO of Retirement Clearinghouse. “Here we are in the business of taking people out of the plan—a mandatory distribution—what if we set up a system with all the recordkeepers, and instead of sticking these small balances in a safe harbor IRA [individual retirement account], what if we went looking for their new 401(k) and automatically rolled them in?”

Some of the largest recordkeepers are currently exploring this possibility, Williams tells PLANSPONSOR. “They haven’t committed to moving forward, but they see exactly the same benefits, the first one being stopping the leakage.” 

By creating this “electronic highway,” he says, plan sponsors can take further advantage of participant inertia. “Over time, the mobile work force becomes accustomed to their 401(k) moving with them and they stop cashing out.” 

The Employee Benefit Research Institute (EBRI) reports that nearly 40% of 401(k)s today hold $10,000 or less, Williams says, and a large portion of that population has at least one other account. By automating this roll-in process, he believes the retirement industry could prevent the problem of disparate accounts and do a great service to participant demographics most likely to cash out a small balance.

Doing this requires a small change in thinking, Williams says. Looking at a plan, today the automatic rollover provision directs funds out of the plan environment. “If you connect the system with auto-portability, that same employer could now anticipate that some percentage of its new hires is going to arrive with a balance. So, instead of starting at zero the day they enroll, we automatically move their old account with them.” In a perfect world, he adds, “a plan would expect to receive as much as it distributes.”

How It Works

The process begins with a distribution of a small account balance—less than $5,000—from the plan, Williams explains. 

“The plan distributes that $4,000 account to a safe harbor IRA. We now have an electronic record of who that person is and all of their demographic information associated with that account,” he says. “We then take that information—and, of course, we have to follow the highest protocol for security and confidentiality—but we essentially take that person’s Social Security number and we send it to all of the recordkeepers that are participating in the system.”

Those recordkeepers, he continues, can then search their systems for an active 401(k) attached to that individual. This is all done electronically, and if a recordkeeper locates an account for the same person, it sends a notice back to the clearinghouse. After verifying that both parties have the correct person—by checking, for instance, the last name, date of birth and address information—if the scoring system says that it is a true match, the account is then transferred from the safe harbor IRA to the new plan sponsor. Throughout this process, the individual is sent updates and given the choice to opt out.

“The Department of Labor [DOL] is actually working on what’s called an advisory opinion, which is really providing a legal statement—not only to us, but to the plan sponsor—that says this process of negative consent is OK. We’re hopeful that the Department of Labor will issue that opinion in the near future, and then we’ve got all the bases covered,” Williams says. “That could well be a trigger for the process moving forward and being adopted on a broader basis.” 

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