Benefits of Asset Retention for DC Plans and Participants

August 28, 2012 ( - Gay Lynn Bath, deferred compensation manager for the State of Oregon, believes it is in participants’ best interest to keep assets in their defined contribution (DC) plans.

She cites a good mix of diversified investments, professional investment oversight, low fees and the ability to roll other savings into their plans to keep assets in one place as some of the reasons.  

Speaking at a webcast sponsored by the National Association of Government Defined Contribution Plan Administrators (NAGDCA), Bath noted that some participants take their money out of the plan because they think they have to and some want a financial adviser. She said the State of Oregon provides education to participants about keeping their assets in the plan and has implemented a no-fee transition counseling service provided by its recordkeeper.  

Alison T. Borland, vice president of Retirement Strategy and Product Development at Aon Hewitt, said DC plan sponsors should not only focus on decreasing outflows from the plan but also increasing contributions and rollovers into the plan. The benefits of keeping assets include fee savings and increased purchasing power for the plan; improved access to solutions both for plan sponsors and participants because of plan scale and ability to procure solutions from different providers; participant access to unbiased, trusted help that is catered to benefiting them; and more savings for participants in reduced fees and tax benefits.  

According to Borland, fee differentials for participants can be 25 basis points through better leveraging of solutions due to the scale of the plan; that is the same value as contributing 0.5% of additional pay throughout the employee’s career. In addition, more scrutiny by sponsors of investments leads to the use of an institutional approach resulting in lower fees and commingled funds and separate accounts, not just mutual funds. Commingled funds and separate accounts can lead to a 32% to 43% savings for participants, depending on the asset class of investments.

Michele Martin, regional vice president for California and Nevada at ICMA-RC, said the framework for a successful asset retention program includes four major components: building a strong and engaged team, finding the right message, starting early and ongoing implementation of the program.  

According to Martin, the team should include staff responsible for day-to-day administration of the plan because they are the first point of contact for employees. Providers can also share employee demographics, and participants and/or retirees may want to help guide their peers.  

To get the message right, identify what is important to participants; survey those age 50 and older, hold retiree focus groups and talk to employees who chose to leave the plan. As examples, Martin said the issue could be fees, diversified investment choices or ease of access to help. Plan sponsors should use the information they find to brand their plans in communications with participants.  

Plan sponsors should start these communications early, she added. Plan sponsors should get to participants before they develop relationships with outside professionals, before they consolidate assets with another provider and before they leave the company. Martin said plan sponsors should reinforce the message that they and the plan providers are there for participants both when saving and when they are in retirement.  

Remember the Rule of Seven, Martin suggested, people must hear or see a message at least seven times before they take action. Also, plan sponsors should remember that people learn differently, so they should use multiple channels for communication—seminars, one-on-one meetings, Web messages and mailings.

These are the communications Brayton McK. Connard, SPHR, director of human resources for Monroe County, New York, said his team used in 2007 during a plan service provider transition that presented a risk that separated participants might roll over their account balances. He said they provided information customized to retired and separated participants and the outcome was no appreciable change in the number of rollovers out of the plan during the post-transition time period.  

His team used an aggressive communication strategy as well to address the risk of outside financial professionals wooing participants into individual retirement accounts (IRAs) with higher fees and fewer fund choices. In addition, they were aware of more separations as Baby Boomer employees got nearer to retirement age and the County implemented layoffs due to the recession and local government fiscal restraints.  

The communications were as simple as possible and communicated the plan’s advantages. Connard said the County’s mailings have received positive feedback from participants who are surprised to learn (or be reminded) that they are not required to leave the plan at separation, can later access funds after separation without a 10% penalty and can rollover the funds at any future time. The mailing created no additional cost for the County; it was added to existing mailings, so there was no extra postage or extra staff involved.  

Additionally, when employees contact HR with pre-retirement inquiries, the staff emphasizes the benefits of keeping DC assets in the plan. When the plan provider receives a rollover request, someone contacts the participant and explains the advantages of staying in the plan.  

Connard said the number of rollovers by participants has been lower each year since the asset retention program was implemented in 2007.  

On the flip side, the program catches employees when they walk in the door, letting them know the advantages of rolling prior retirement plan assets into the County’s plan. The County has seen a more than 300% increase in the annual rate of rollovers into the plan.  

Connard said, to gain participants’ trust, “run a good plan.”