The last six months have provided a unique framework for thinking about what you need from your service providers.
“Whether it was your adviser or recordkeeper, you should have expected contact early and often,” Phyllis Klein, senior director, retirement services, CAPTRUST Financial Advisors, told attendees of the 2020 PLANSPONSOR National Conference during a virtual discussion. “Looking at my personal calendar, from the day we decided to work from home, there were very specific things dealing with the effects of the COVID-19 pandemic. Right off the bat, we held webinars to tell plan sponsors to take a breath and let them know we are pulling information and we’re paying attention.”
“One thing we heard from plan sponsor clients is proactive service providers are important,” said Joshua P. Itzoe, partner and chief strategy officer at Greenspring Advisors. “We reached out immediately to let them know we’re here for them and their participants. We recognized that with the other issues they were dealing with, their retirement plan was not the top priority. We tried to do weekly check-ins and ask what they needed as far as communication frequency.”
Itzoe said his firm did webinars with retirement plan sponsors not just about the market reaction to COVID-19, but also about the Paycheck Protection Program (PPP) that was rolled out as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act and whether employers needed to suspend their retirement plan match. “We tried to think holistically about their businesses, not just their retirement plan,” he said. Itzoe said it wasn’t until some deadlines from the CARES Act hit that his firm had to reach out and push plan sponsors to focus more on their retirement plans.
Plan sponsors received a lot of information about deadlines, but Itzoe suggested that a good adviser would consider more. A good adviser wouldn’t just talk to plan committees about provisions and deadlines, but he would also discuss the effect of offering $100,000 loans. “I think we had only one client adopt expanded loan provisions,” he said. “Good advisers stepped up and helped committees provide guidance about the bigger implications of offering expanded loans. What if someone took a loan and the company had to lay off workers a month later? Loans could go into default and participants would pay penalties.”
Itzoe encouraged conference attendees that when they look for provider partners, they should look for one that has the wisdom to offer information and put it in the right context. “I think that’s the difference between what a retirement plan specialist adviser offers and what a generalist adviser offers,” he said.
When looking at providers’ responses to the events of this year, Klein said it was important that they didn’t just push out information to plan sponsors, but that they also gave context. There was an urgency plan sponsors were feeling, but at the same time a new law had to be digested. Did providers have the ability to help plan sponsors understand both the legislation and how the providers were responding? “In addition, plan sponsors needed help with decisionmaking. We looked for recordkeepers to work in tandem with us advisers because each client had a different decision to make,” Klein said. “Plan sponsors needed to be armed appropriately to make the right decisions for their plans and participants because things were moving fast.”
Casey Craig, head of large, mega and not-for-profit sales at Empower Retirement, said this is when the term “partnership” came to light. Empower also was proactive and made sure it was in step with advisers to plans.
He noted that COVID-19 hasn’t been easy on recordkeepers. “When the CARES Act came out, it would have been challenging enough to prepare our systems while working in the office, but our employees were working from home,” Craig said. “We had to make sure each had their technology needs met, and data security needs had to be addressed. At the same time, visits to websites increased and call volumes went up.”
For smaller plan sponsors, Empower used an opt-out approach for CARES Act distributions and expanded loan limits. “We said, ‘If we don’t hear from you, you will be part of the CARES Act.’ For large plans, we reached out to each to see what they wanted to do. Operational readiness was important,” Craig said.
In spite of recordkeeper challenges, many offered help by waiving fees for plan sponsors making plan amendments and for plan participants’ transaction costs. “We knew that working Americans needed help and we have transaction fees,” Craig said, “Many recordkeepers run on tight margins. But we knew participants needed distributions and loans and needed them quickly, so we were among the providers that waived transaction fees.”
Craig added that, beyond helping with retirement plans, Empower gave bottles of hand sanitizer to clients, especially in the health care space, so they could hand them out to employees.
Will RFPs Change?
Klein said the issuance of requests for proposals (RFPs) and fee benchmarking fell off by about half in the past six months. “That just signifies that retirement plans fell lower on plan sponsors’ priority list. I feel like sponsors didn’t slam the brakes, but took their feet off the accelerator,” she said. “We had clients looking for a recordkeeper change, but the process slowed. Not because it wasn’t important, but because sponsors’ responsibilities to their businesses in general were taking precedent.”
RFPs typically might have been based on some issue plan sponsors were having with their current service providers, but, going forward, some RFPs may be more about something that has changed for a plan sponsor’s business, Klein said. “The questions haven’t changed due to COVID-19 yet, but we are seeing more questions about participant services—participant advice services is a focus—and about cybersecurity questions,” she said. “From talking to recordkeepers, they are seeing a greater concern about fraud because of COVID-19. Protecting participant information will continue to be important.”
When doing an RFP, Klein suggested plan sponsors get some specifics about what providers did during COVID-19. “That will tell you how responsive they are and how deep their resources are,” she said.
Klein added that plan sponsors should understand what their participants need, how plan sponsors want service providers to deal with them, what technological capabilities are needed and if the sponsor has a complex plan design, whether the provider can handle it.
COVID-19 has accelerated the interest in financial wellness, Itzoe noted. “I think RFPs in general include more questions about how advisers or providers help participants,” he said.
“From Q1 to Q2, we saw a 15% drop in RFP activity,” Craig said. “We had instances when we were about to do finals presentations and plan sponsors hit the pause button.”
Some differentiators Craig suggested plan sponsors look for in service providers include a commitment to innovation, investment back into the recordkeeping business, the ability to address different situations to create results and a caring firm culture. He said plan sponsors should ask: “Are you taking care of customers, but do you also take care of your employees?”
Itzoe said asking the right questions in an RFP is only half the battle. “Sponsors have to know how to interpret answers as they are reading through RFPs or hosting finals presentations,” he said. He encouraged plan sponsors to be open about what challenges they are having, and he said he would love to see the RFP or final presentations experience be case study-driven. “Tell providers, ‘Here is a problem we are having’ and ask potential service providers what they would do about it or how they have addressed that problem with a previous client,” Itzoe explained. “The response not only shows providers’ experience but how they relate and communicate with clients.”
For those that want to do an RFP but are worried about adding to the disruption participants are already going through, Itzoe reminded plan sponsors that their fiduciary duty is to do what’s best for participants, and that may cause some disruption. “So if a change in provider will result in a better outcome for participants, do it,” he said. “COVID has shown us that people are resilient. Just be honest with them about the reason for the change. Sponsors need to have the courage to make decisions they know are going to drive better outcomes.”
That said, Itzoe suggested that before issuing an RFP, plan sponsors should figure out if their problem with service providers is just a communication issue. “Have an honest, open dialogue with your providers, and you might find things will get better,” he told conference attendees.
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