TRO: Should Small Plans Follow Suit?

So-called Total Retirement Outsourcing, or TRO, has also been touted as alleviating some of the administrative pressure for large plans and perhaps for smaller plans. More recently, that approach has also gained traction with companies entertaining the thought of freezing their defined benefit plans, as they begin the search for a provider that can once and for all take the plan’s administrative weight off their hands ( Freeze Out) .

However, what is good and practical for larger programs may not always work as well for mid-size and small plans. “They (smaller plan sponsors) need more support around plan designs, around the documents and due diligence,” said Michael Ziccardi, AIP, VP, Financial Solutions, CBIZ Inc, and a panelist at the Plan Designs 2006 conference hosted by PLANSPONSOR magazine in Chicago last week. He added that smaller companies are often targets of acquisitions and mergers, so their plans run the risk of changing hands more frequently than larger companies.

Educate or Let Someone Else

The opportunity to educate participants about where they are putting their retirement savings and how it is being invested seems a less daunting exercise with a small plans, as the number of participants that need to be reached is fewer. However, smaller plans also are often stretched for the resources to do so.

Ziccardi questioned whether it was even useful to educate and advise participants about the theory behind particular investment options. “[Participants] are uninterested in the ‘why,’ they just want to know how to invest it. That’s what they are most concerned with,” he added, with the warning that this might be seen by some as a fiduciary risk.

Panelist Tony Wiglusz, Director of Finance at Anderson-Dubse Company, an Ohio-based supplier for McDonald’s, said that his company must look to someone else for investment advice for its retirement plans — a case he makes for getting outside help.

Wiglusz also questioned whether participants should even be educated about investment options. “The blue collar workers in our warehouses don’t really want to know what they are investing in, they just want to feel comfortable and never have to look at it again.”

“We’ve spent 20 years trying to educate the consumer, but our society is taught how to spend, not how to save,” said Matthew Mintzer, Managing Director, Retirement Services, AllianceBernstein. “We’ve got to get away from trying to make them professional financial managers,” he added.

One way to at least give participants an idea of how much they will have after retirement is to deflate some of the mystery of DB plan balances by making them more frequently available, Wiglusz said. He said TRO might bring that along by having the resources available for better reporting of balances.

“They can go online to their 401(k) and see what they have each day, but they can’t find their DB statement from last year,” Wigulsz said.

style="MARGIN-BOTTOM: 12pt">There has been some discussion on whether TRO, which was used first by large plans, could be more costly for small plans to shift their retirement administration to an outside party. The argument goes that if small companies hand over their all of the administration of their defined benefit and defined contribution plans, TRO providers might be more willing to bend on the features they provide, which gives a smaller company the leverage of a higher-dollar client.

Ziccardi said that both large and small plan sponsors are looking for solutions that require fewer players, which sometimes runs the risk of removing checks inherent when several parties have competing roles or interests in the plan. "You kind of remove the checks and balances" because clients are looking for more clout with one provider.

Mintzer said that even though smaller companies have not yet felt the same strong push toward full disclosure as large companies, the warning is an industry-wide one and does not foresee the conflict-of-interest inherent in TRO as a problem.