In Part 1 of this article series, we discussed the need to know where your plan stands in terms of value received for costs incurred. This is important for fiduciary and business reasons. Plan-level decision makers are fiduciaries and are legally obligated to spend plan assets prudently (because plan assets belong to the plan participants).
A tightly managed retirement plan can also bring business benefits, including recruitment and retention, increased productivity, and moving costly older workers into retirement (because they will be better able to afford to retire).
How should you proceed? If you agree that a reasonableness assessment is an important and potentially valuable undertaking, three main options are available to you:
RFP – While the Request for Proposal process will leave you with a comprehensive report for your due diligence file, and potentially lead you to a better provider outcome, it will definitely lighten your wallet and will tie up chunks of your calendar. If you have the time and financial resources to pursue the RFP path, you have to first decide who you are going to hire to help you. You’ll want to focus on competence, cost, time and objectivity. The first three are pretty straightforward. Make sure you ask good questions regarding objectivity. How big is the universe of providers that will be considered? What are their biases?
RIA – Speaking of biases, we are a Registered Investment Adviser, so in the interests of full disclosure, we strongly believe that a seasoned retirement plan adviser can work wonders – whether it’s our firm or one of the many other top tier retirement-centric firms out there. Those of us that live and breathe retirement plans have access to all sorts of benchmarking data. This makes the price part of the analysis pretty simple. To get at value, we look at the features and services being provided by the platform vendor (recordkeeper) and by the plan’s existing broker or adviser if there is one.
- For the platform provider – How open is the investment architecture? Are there proprietary fund requirements? Does the platform allow for asset allocation models? How good are the participant-facing tools and resources, including employee education? How much of the administrative burden will the recordkeeper accept? Will they approve and process distributions and loans? Will they track beneficiary information? How much of the compliance burden will they absorb?
- For the broker or adviser – Do they accept fiduciary status, in writing? [It’s really important for your adviser to have “skin in the game”, and most of the time, non-fiduciary broker/advisers charge about the same fees as those who do accept fiduciary status.] Will they meet with employees and give them advice? Will they agree not to cross-sell to your plan participants? How focused are they on your plan’s success – high enrollment, realistic employee savings rates, and sensible individual investment allocations? Do they have a prudent process for managing the plan’s business? Will they provide an Investment Policy Statement? Will they help with plan governance?
DIY –While professional
help will likely lead to a better result, the Do It Yourself approach is much better than doing nothing. Sometimes,
it may be enough to tell your current provider(s) that you are “going to
market” with your plan. They may offer substantial cost reductions or service
enhancements to retain you. You may still not know how much better you could
have done, without a comparative analysis, but you may be satisfied to be
moving in the right direction.
There
are a number of RFP templates on the internet. In our experience, most RFP
templates leave us rolling our eyes. They ask for a lot of meaningless
information and fail to ask for many of the important things. Basically, they
waste a lot of everyone’s time.
If you want to pursue the DIY approach, take the questions in the section
above, 2(a) and 2(b), and tailor them to the unique needs of your plan and your
workforce. Speak with your industry peers to see if they have provider
recommendations and look to resources such as the upcoming Buyers Guide in PLANSPONSOR
magazine. Speak with two or three suitable providers. Give them your questions
in advance so that their presentations will be more relevant.
Sit back after experiencing two or three proposals and see what you think. Have
you heard anything compelling enough to make you seriously consider a provider
change? Based upon those proposals, should you solicit more, or is that enough?
Unless there is a good reason not to, give the incumbent an opportunity to
rebid on your plan to retain the business.
Summing it up, you have a legal and moral obligation to ensure that your plan is tightly managed. A tightly managed plan carries less risk, and can bring economic benefits. A really attractive retirement plan can be an effective recruitment and retention tool and studies suggest that workers are more productive when they are less worried about their financial future. Also beneficial, more-costly, older workers may be more inclined to retire if they are financially prepared to do so.
Evaluating your plan’s competitiveness is critical. We’ve outlined three different approaches, one of which may be a good fit, depending upon your appetite to expend time and money. In our experience, you can expect a significant return on investment (ROI) on the resources you expend in the manner described above.
Jim Phillips, President of Retirement Resources, has been in the investment industry for more than 35 years, the past 18 of which have been focused in the area of qualified retirement plans. Jim worked for major national investment firms for 14 years before “going independent” in 1990. Jim is an Accredited Investment Fiduciary, has contributed to two books on 401(k), and his articles have been published in Defined Contribution Insights, PLANSPONSOR’s (b)lines and ASPPA’s 403(b) Advisor, and Jim is a RetireMentor on MarketWatch.com. His work has been acknowledged with multiple Signature Awards from the PSCA, he has been named to the 2012 and 2013 list of Top 100 Retirement Plan Advisers, by PLANADVISER Magazine, and he was a finalist in 2012 for the Morningstar/ASPPA 401(k) Leadership Award. Jim has been a frequent speaker at national conferences, including SPARK, ASPPA, AAO and the PLANSPONSOR and PLANADVISER National Conferences.
Patrick McGinn, CFA, Vice President of Retirement Resources, is a CFA charterholder and has been in the securities industry since 1993. In addition to the Chartered Financial Analyst designation, he is an Accredited Investment Fiduciary and a member of the Boston Security Analyst Society. Together with Jim, Patrick has co-authored a number of articles which have been published in industry publications on topics about managing successful 401(k) and 403(b) plans. His work has been acknowledged with multiple Signature Awards from the PSCA, and he has been named to the 2012 and 2013 list of Top 100 Retirement Plan Advisors, by PLANADVISER Magazine. He was a finalist in 2012 for the Morningstar/ASPPA 401(k) Leadership Award.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.