Plan Health Not Just About Fees and Investments

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.

Prudential’s new tool, Plan Power, generates a plan wellness score by measuring outcomes, which are based on how the plan design is expected to encourage positive participant behaviors and, ultimately, improve participants’ retirement outcomes. Plan Power brings together Prudential’s actuarial, investment, and data analytics expertise to predict how most participants will behave in response to various plan features, and uses these predictions to model the outcomes.

When optimizing their participants’ retirement outcomes, most sponsors wish to do so in a cost-effective way, Prudential says. Plan Power addresses this objective as well.

Zlatar says this tool is one in the suite of tools Prudential Retirement has in its financial wellness platform. “The retirement business is focused on delivering retirement outcomes for individuals, but plan sponsors and providers know many events keep participants form achieving that goal. Financial wellness enables individuals to manage day-to-day expenses, save for long-term goals and protect against key risks,” she says.

The company announced a three-year, $5 million partnership with the Aspen Institute to advance solutions that increase financial security for all American workers, and armed employers with new tools and resources to help them to understand and improve the financial health of their workforce.

The partnership will promote broader reforms in both the labor and financial markets to help working people move from financial fragility toward resilience, stability, mobility and prosperity. The investment highlights the need to increase the national discourse about greater economic access as workers bear increasing risk and responsibility for their short- and long-term financial security.

In addition, Prudential has expanded worksite financial wellness solutions: New capabilities include diagnostic tools to help employers better understand the financial needs of their workforce. Employers who adopt these solutions will be able to offer their employees a personalized interactive experience that includes videos, tools, webinars and articles that empower them to manage their financial challenges. The new capabilities build on Prudential’s existing financial wellness solutions, including in-person financial education and counseling resources.

For its part, ForUsAll has introduced its 401(k) Benchmarking Center. According to Jones, the first tool in the center helps plan sponsors understand the fees they are paying. There is a form to request a fee disclosure from a provider, and if they have the fee disclosure, they can upload it and a consultant will produce a report to help them understand the fees.

A second tool helps plan sponsors compare their plan to the industry and best practices. “Plan sponsors can select how many employees they have and receive an output about average fund fees, savings rates, percent of companies with certain plan design features, and all-in bundled fees for plans of similar size,” Jones says.           

Assuming plan sponsors have utilized these two tools, and they find a metric is off and want to do a comparison of providers, the 401(k) Benchmarking Center offers an estimate of costs of three low-cost recordkeepers. The plan sponsor inputs employee count and plan assets. There is also a request for proposals (RFP) template plan sponsors can download, and a simple worksheet for provider comparison.

Finally, Jones says plan sponsors can request a plan health assessment with one of ForUsAll’s consultants. He notes this is available for current clients as well as prospects.