Administration June 5, 2015

PSNC 2015: Using an Adviser or Consultant for Your Plan

How to find a specialist adviser, and the value one can bring to your plan.
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Speaking at the 2015 PLANSPONSOR National conference, Judi Leccese, retirement plans manager at Cabot Corporation, outlined the process of searching for a retirement specialist adviser. 

Before sending out any requests for proposals (RFPs), Leccese said, check in with the plan committee first. Establishing a checklist of desired traits can guide the questions contenders will be called on to answer. Does the plan need a 3(21) or 3(38) fiduciary adviser? Will the adviser be called on to help with a defined benefit (DB) and/or defined contribution (DC) plan? These are all important to determine before launching the adviser search. 

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Different plans require differing amounts of investment advice and consulting on plan design and strategy, Leccese noted. “The vendors who ask you questions, to determine how best to serve your plan, are often the best,” she said.

Is there a particular situation you need help with? Ask possible advisers if they have dealt with something similar before, urged Stephen Popper, managing director of SageView Advisory Group. Whether help is needed for mergers and acquisitions or for servicing plans put in place across multiple locations, there are advisers with great experience in each segment. 

Rita Fiumara, first vice president, investments, UBS Financial Services Inc., suggested looking for specific designations, like the certified investment management analyst (CIMA) title. An adviser should be trained to give the committee advice that is based on modern portfolio theory and the standards established by the Department of Labor (DOL).

A retirement plan adviser should be an extension of the investment committee and human resources team, she said. The sponsor needs someone who knows their plan’s objectives and employee dynamics, and whose resources and capacity are sufficient to meet their particular needs.

Many plans don’t give themselves all due authority when it comes to their interactions with the adviser. The thing to remember, Popper added, is that “at the end of the day, we work for you guys.” A good fit is important, and the sponsor should think of the adviser as an employee to get the best services for the plan.

NEXT: Who’s going to jail?

Leccese has a 3(21) adviser. As she put it, her company wants to be shown the road, but to drive the car. Understanding what different advisers can do for a plan, and how much fiduciary responsibility a sponsor can pass on, is a critical factor when evaluating advisers and advisory models.

Of the 3(21) designation, Popper said, “co-fiduciary is a made-up word. … It means we’re all going to jail together.” The co-fiduciary relationship means that the adviser provides investment advice, but the plan is ultimately responsible for acting, or not, on those recommendations.

A 3(38) adviser takes more discretion within the plan, so the plan sponsor only retains fiduciary responsibility for selecting and monitoring the advisory firm. That set-up is less common and more expensive, Popper said, but can be especially beneficial for entities that have no investment ability, such as church plans.

You’re either going to be monitoring your investments, or you’re monitoring the adviser and the firm, Fiumara explained. Know what services you want and need for your plan; if someone’s fees and services also meet your checklist, that’s a home run, she said.

After that, get a copy of the firm’s contract. What type of insurance do they have? Do they name themselves as an Employee Retirement Income Security Act (ERISA) fiduciary? Have your attorney review the document to make sure that the contract includes the services you agreed upon during the negotiation process, that the people you met with are the ones you will work with day to day, and that there are no prohibited transactions.

NEXT: Practical advice. 

Everything is interconnected, Fiumara said, so make sure the adviser is giving advice that providers are equipped to follow. This is especially important if the recommendations are documented—be wary of “best practices” the plan cannot adopt due to business restrictions or any other reason.

Being an adviser is about more than just participant outcomes, Popper said. The adviser has to protect the plan sponsor and fiduciaries as well. He suggested the best defense against litigation is a good offense—automatic enrollment into a qualified default investment alternative (QDIA), such as a target-date fund (TDF), plus auto-escalation. “You can ask your adviser for a lot more now than you could 10 years ago,” he said, and the market seems to be at the bottom of the recent fee compression trend.

Your committee likely wants to meet for an hour every quarter and make decisions, so find an adviser who is willing to do the grunt work separately, then report on progress during the meetings. Many advisory firms can take on a lot of tactical work, and doing so integrates them further into a client’s culture and community, making them better informed in that work. A better adviser dynamic can result from understanding personally what your colleagues’ needs are.

Finally, Leccese suggested, to determine if they’re a good fit—and discover what the firm’s limitations are, functionally and interpersonally—ask potential candidates, “What won’t you do for me?”

Participants June 5, 2015

PSNC 2015: What Participants Really Want

Looking for research-backed insights about retirement plan participant decisionmaking? We’ve got them.
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In a presentation closing the 10th annual PLANSPONSOR National Conference in Chicago, Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, outlined key findings from this year’s PLANSPONSOR Participant Survey.  

Data from the survey was presented in the April 2015 issue of PLANSPONSOR, but the presentation at PSNC included new cuts of the data that show clearly what participants want and expect from their plan sponsors, advisers and service providers. The sample is comprised of workers age 23 and older—65% of whom actively participate in a workplace retirement plan. Eleven percent of the sample has access to a plan but does not currently contribute money, and one in three have more than 10 years of tenure at their current employer.

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Overall, the survey data shows a scant 35% of individuals are confident or very confident that they will achieve a secure retirement. The figure is a little better, at 41%, for active participants age 50 and older. Not surprisingly, only 25% of those lacking access to a plan at work are confident they’ll achieve a secure retirement.

The survey finds 76% of people who report being confident or very confident about retirement have $50,000 or more saved across all retirement accounts. This confidence is a good thing for the 22% in this group who have more than $500,000 saved—but overall the figure denotes dangerous overconfidence, as a single year’s health expenses in retirement average around $43,000 per year.

As Cooke Mintzer observed, “many of those people who report feeling confident are feeling confident at lower savings levels than we would like.”

She suggested one solution would be to frame savings as lifetime income, rather than a lump sum. “When they see $50,000 is only going to translate to a couple hundred bucks a month or less in retirement income, it could be a valuable reality check that shows they’re not really on track.”

NEXT: Employees cite stress across the board

In the face of savings hurdles, a strong majority of individuals in the survey (76%) reported at least mild financial stress, and 48% said their stress is moderate or severe. Nearly 32% are focused on paying off debt—including many in their 40s, 50s and even 60s.

This helps to explain the 51% of individuals who reported they want more guidance related to financial planning and financial wellness supplied by their employer. Thirty-eight percent want workplace training about investing basics and strategies, while 35% asked for help with saving and budgeting.

“People commonly reported that they want guidance about how much they should be saving—they want a specific number or percentage of income,” Cooke Mintzer noted. “As an industry, we’ve avoided that total number conversation. Only in the last two or three years has there been mass discussion of getting to a savings rate of 10% or total contribution with employer match near 12% or 15%. Many participants said they have no idea what goal they should be progressing towards.”

Drilling deeper into the desire for advice and guidance, 46% would prefer advice delivered through online tools or automated services. Importantly, only 26% said they would pay a premium for personalized and highly customized advice versus getting generic advice that is free.

NEXT: Plan sponsors play critical role in confidence

Highlighting the critical role plan sponsors play—especially in setting plan design—there were strong peaks in the occurrence of participant contribution rates around 3%, 5%, 6%, 10% and 15% of salary. As Cooke Mintzer explained, these are the numbers most commonly used by plan sponsors as the default auto-enrollment rate.

“The numbers clearly show plan sponsors have a lot of power in their hands to get people to save what they should be saving,” she said.

Asked how they arrived at their deferral rate, more than one-quarter of people in the survey said they did it to get the whole match. Nearly 20% are “trying to consistently hit a targeted savings level,” i.e., saving $100 per paycheck or $3,000 per year.

“Unfortunately, stretching the match is not always the answer here,” Cooke Mintzer said. “We do see a significant drop off in willingness to save to get the full match when you push it up to, say, 25% of the first 12% of salary deferred by the employee, rather than 50% of the first 6% of salary.”

One heartening statistic for plan sponsors: participants largely hold themselves accountable for failure to be better prepared for retirement. More than 75% of employees said their employer’s plan is excellent, very good, or good—and another 16% on top of that say their plan is fair, leaving just 2% giving their employer-sponsored retirement benefit a poor rating. Two percent said they were unsure. 

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