Compliance March 13, 2014

Streamlined Fee Data May Have a Hitch

March 13, 2014 (PLANSPONSOR.com) – The Department of Labor's (DOL) fee data proposal is a good idea, but with one possible difficulty, says Bruce Ashton, a partner in Drinker Biddle & Reath’s Los Angeles office.
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When they are adopted, these guide requirements should make it easier for plan sponsors to find the information they need to assess whether a service arrangement and the compensation are reasonable, Ashton says. However, covered service providers will have to furnish a separate document that details where the plan sponsor can find required information—“and plan sponsors must know they are supposed to receive this document,” Ashton tells PLANSPONSOR.

Ashton stresses that this is crucial information, because if plan sponsors do not receive the guide along with the required disclosures, they need to ask for it. And if they still don’t get it, that failure has to be reported to the DOL, and the service agreement must be terminated.

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Failure to do this, Ashton says, means the plan sponsor fiduciaries have engaged in a prohibited transaction—and could thus be personally liable to restore funds to the plan.

A fiduciary’s need to know what they are required to get from the service provider, and to ask for it if they don’t get it, is not new, Ashton says. But, the requirement that service providers give another item of disclosure is new. And fiduciaries must know about this so they can add it to their checklist of items to look for and ask for, if it is not received, to avoid engaging in a prohibited transaction.

Ashton emphasizes that service providers need to be aware this amendment to the regulation is going to be finalized. He recommends they begin the process of designing their guide and working with their systems people on the mechanics of populating it and delivering it to prospective clients—possibly the most important step service providers can take.

Since the DOL has asked for comments on varied issues, service providers should decide if they want to comment. Issues include the page number limitation for when they need to provide the guide, how to provide the specific location--by page number, or section number, or a link on website, and whether the information can be provided electronically?

This new requirement will apply only prospectively, says Ashton. “This is not stated explicitly in the proposal, but there is an indication that the requirement will only apply on an effective date in the future, as yet unknown,” he says. There is no indication that the DOL intends for service providers to go back to existing clients to provide the guide. “Service providers may want to comment on this just to get an affirmative response from the DOL that this is the intent.”

A requirement to provide a notice of changes in the disclosures previously made to plans already exists, Ashton notes. “It appears that the amendment to the regulation will require that the service provider also send out an annual notice of any changes to the guide if there have been changes to the disclosures,” he says. He adds that service providers may want to comment about this requirement as well to see if there is a way to avoid duplication of effort when changed information needs to be sent out.

The proposal doesn’t seem to have anything especially tricky, Ashton says. “The DOL has gone to great lengths to make it clear that service providers can make the disclosures in any format they want as long as it gives plan fiduciaries a clear indication of where to find the information,” he says. “However, where a registered investment adviser (RIA) incorporates its Form ADV by reference in its disclosures, it will probably need to provide the guide.”

The need to do this could trip up some RIAs, he says, who may think they don’t have to do this. Some third-party administrators that may receive indirect compensation may also be impacted if they use a brochure or other disclosures from a plan provider to disclose this compensation. Ashton points out that they may not realize they will probably be covered by this guide requirement.

Ashton says some providers could be lulled into thinking they have complied with the guide requirement, because of the reference to an “other specific locator, such as a section.”

“Suppose they refer, in their guide, to a section of a document that is 20 pages long?” Ashton theorizes. “My suspicion is that this won’t be considered by the DOL to comply with the requirement of the reg. The point is that providers will need to be aware of the spirit of the reg, and not just the words.”

Participants will most likely remain unaffected by the requirement, Ashton says. “To the extent the requirement helps their employers to analyze their service providers and potentially negotiate better deals, it may help participants in the long run. But I don’t see any short term impact, either good or bad."

Benefits March 13, 2014

Building an Effective Financial Wellness Program

March 13, 2014 (PLANSPONSOR.com) – There are many elements that make up an effective financial wellness program for a company, according speakers during a recent webinar.
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One element is to understand the psychology behind such a program, says presenter Linda Robertson, a certified financial planner with Financial Finesse in El Segundo, California. “In order to help instill positive financial habits, employers need to understand some of how behavioral finance works. Something like a rewards systems, where participants enjoy the competition and the thrill of the hunt,” she says. Robertson points to examples of this dynamic in the retail world, such as frequent flyer programs and coupons.

Understanding your audience through demographic data and targeted communications can also help foster success with a financial wellness program, says presenter Liz Davidson, CEO of Financial Finesse. She compares it to how some retailers are successfully using algorithms to predict future purchases based on their customers’ past purchases and the life events they are going through.

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The real goal, says Davidson, is not so much predicting what a person will do as directing them to form specific and positive financial habits. “In surveying 25,000 employees, Financial Finesse finds that 86% of them report feeling stress when it comes to finances, with 23% saying such stress is either high or overwhelming,” she says.

This research also shows that only 20% of respondents feel they are prepared for retirement and only 50% have a fund for financial emergencies, says Robertson. This lack of preparedness can lead to retirement plans experiencing more loans or hardship withdrawals by their participants, she says.

Davidson says another effective strategy for building a financial wellness program is by starting with a broad audience and then getting more specific. “Employers can start out with a general online center to see who’s interested in the program, then progress to workshops and webinars tailored to employees’ needs based on assessments. From there, you can continue on to one-on-one meetings about financial planning.”

She also advises using multiple channels or delivery methods to convey information about the financial wellness programs, pointing out that the more employees are exposed to such materials, the greater the chance the information will sink in, be remembered and be used.

Davidson acknowledges that some employees may be hesitant to discuss financial planning in general or to sit down with a financial adviser. “But if you have an employee go through a process like this, the more focused and confident they will become,” she says.

Another building block to a successful financial wellness program, says Davidson, is to not overwhelm employees with too much information, adding, “None of us have as much time or willpower as we would like.” She says employers should work with employees to set goals that are achievable, as well as get them to understand that the process of financial planning and wellness takes time. “Build on the small wins,” she says.

She also recommends employers guide employees away from emotional reactions to negative financial situations by educating them and offering rational next steps, as well as scheduled tasks. For example, she says, couples can set aside time every week to discuss finances or evaluate what savings goals they have achieved.

Davidson adds that a system that documents milestones reached and progress made is also effective. “Full financial wellness can take a lifetime to achieve, so regularly do an assessment to note milestones and see what next steps need to be done.”

Robertson says incentives can be helpful in motivating employees to participate in financial wellness and to achieve financial planning goals. Such incentives can include free one-on-one financial coaching, having the financial wellness program added to the company’s menu of benefits, or even a tangible raffle prize that employees can compete to win.

For those employers with smaller budgets, gift cards or extra time off can be used as incentives, says Davidson. “Regardless of what incentives are used, the key is for employers to show their commitment to helping their employees achieve financial wellness.”

Davidson concludes, “Remind employees that this is a process, not an event. Employees should focus on immediate changes and develop good, ongoing financial habits.”

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