at the 44th Annual Retirement & Benefits Management Seminar, hosted by the
Darla Moore School of Business at the University of South Carolina, and
co-sponsored by PLANSPONSOR discussed capabilities retirement plan providers offer for plan design
and participant outcome issues selected by the plan sponsor audience.
J. Smith, vice president, Institutional Markets, Transamerica Retirement Solutions, noted that the industry is moving toward simplification for participants,
and plan sponsors want simplicity too. Making sure employees can save and
invest easily is the reason qualified default investment alternatives (QDIAs)
and target-date funds (TDFs) are so popular, he said. Plan sponsors can simplify
investment lineups for themselves and participants by revisiting how many core
funds to include.
Robert Phillips, senior vice president, Consultant Relations, BNY Mellon
Investment Management, said providers are helping plan sponsors with trends such
as indexation, moving to custom TDFs, and white labeling investments. He noted
that a lot of fee compression activity is concentrated on how to get a cheaper investment
menu. One way is through using indexed funds; one way is to use different share
classes. But, Phillips warned, plan sponsors should be careful of what the consequences
are; choosing investments just to lower fees may not be in the best interest of
explained, on a high level, that the difference between A shares and R shares
is that A shares share more revenue with brokers and fund companies, so they
cost more. But, plan sponsors may want an A share because it produces enough
revenue-sharing to pay for recordkeeping. In addition, if considering indexed
funds, plan sponsors need to determine which indices are best for participants.
providers, more traditionally defined benefit plan investments are creeping in
to custom TDF solutions, according to Phillips. Non-style box investment
options are being used, such as real assets, unconstrained bond, and absolute
return. The same is true for white labeled investment solutions. With white labeling, plan sponsors may offer one fund with a generic name, such as ‘Large-Cap Growth,” which uses a multi-manager approach. Phillips noted that this may help plan
sponsors replace under-performing managers more quickly and with less disruption
warned that even with these simplified choices, plan sponsors still need to
monitor investments to help participants succeed. Phillips suggested the
industry may need to reconsider quarterly, rather than daily, valuations of
participant accounts, to help reduced knee-jerk investment reactions. “Nothing
in the law says DC [defined contribution] plans have to be daily valued. They
are supposed to be a long-term savings vehicle,” he said.
in Measuring Plan Success
told seminar attendees that plan success measures have moved away from how many
employees are in the plan—which is still important—to participation in
combination with savings rate. “Ninety-seven percent participation with an
average deferral rate of 1.5% is not successful,” he said. But, success is
different for every employee, so plan sponsors need to be more proactive in
evaluating the retirement readiness of participants, he suggested.
are out there to measure success; plan sponsors just need to ask their provider
if they offer the capability,” said Kevin Kidwell, vice president, National
Non-Profit Sales, OneAmerica.
Measuring success can
inform plan design. Kidwell suggested looking at the employee base; “If, on
average, employees only stay with the company for five years, how should the
plan be designed?”
agreed the plan should be designed appropriately for the group of employees. “Should
you auto enroll, what should be your QDIA, and what services may or may not
help employees, should they get one-on-one advice?” he queried.
told attendees the biggest impact they can have on participant success is to
provide financial literacy. And, employers should get Millennials involved. “Retirement
isn’t usually talked about at all until someone gets to middle age, and in the
defined contribution (DC) plan world, that is way too late,” he contended.
factors are affecting retirement savings decisions, added Kidwell. For example,
since enactment of the Patient Protection and Affordable Care Act (ACA), more
plan sponsors are moving to DC health plan offerings. “Employees can’t decide
how much to defer into their retirement plan. Now they are asked to decide that
and how much to defer into health savings accounts (HSAs),” he said.
contended that HSAs are going to become part of participants’ overall retirement savings.
talking about retirement readiness, we’re talking about a participant’s net
worth, not just account balance,” Kidwell said. “Financial wellness helps
people with all financial decisions.”
trend for which providers are preparing is education at retirement. “It’s a role
employers are going to have to begin to take,” said Smith. “They can’t continue
to say, ‘The employee left. I have no more obligation.’”
said there will be more focus on total retirement education, including
education about non-traditional ideas like reverse mortgages.
Plan sponsors must
find unbiased people to talk to participants about what to do with their assets
when they exit the plan, Smith contended. They should offer alternatives that
do not benefit the person educating participants. “Older workers cost employers
more money, so they need to help employees retire, educate them about their
options, push them to retire and offer advice,” he added. “Employees want that
type of help; they want to be told what to do.”