What Plan Sponsors Need to Learn
Gerald Wernette, principal and director of Retirement Plan Consulting, Rehmann Financial, tells PLANSPONSOR, “Plan sponsors usually feel they have a good general overview about how their plan works, especially when it comes to their skill set for handling day-to-day operations. But what they want and need to know is what’s going on out there that could impact the plan and participants. This can range from new and pending legislation to what service providers, other than theirs, are offering.”
Wernette, who is based in Farmington Hills, Michigan, says plan sponsors may also want to learn more about not only evaluating investment options and plan fees, but also about how to benchmark their plan. They want to know if what they are paying is giving both the plan and its participants what is needed.
When it comes to evaluating investment options, a lot of providers offer benchmarking tools, but Wernette adds, “What plan sponsors really need to look at is that second layer, the one just below the surface. Examining this layer can help them to determine if the fund they’re evaluating is appropriate for their plan participants, as well as how factors such as risk, interest rates and inflation could affect them.” He says when doing this kind of evaluation, it is always more helpful to have not only historical data but information that looks forward as well.
In terms of what best practices plan sponsors should use in administering their plans, Wernette says, “They may want to do a deeper dive into target-date funds, which are becoming very popular as investment options, but plan sponsors may not fully understand their nuances. Plan sponsors need to determine what target-dates funds work best for their participants and understand that what works for one plan may not necessarily be applicable to another.”
Wernette adds that plan sponsors need to gauge participants’ level of retirement readiness and retirement income replacement. If participants' efforts are below what they should be, they need to be aware of it.
Plan sponsors should also improve their fiduciary training, says Wernette. “While we don’t expect every plan sponsor to be an expert in fiduciary matters, there is an expectation that they should have a basic level of knowledge, so they can not only choose service providers and specialists, but be able to hold them accountable. Plan sponsors need to be able to scrutinize providers, as well as funds and fees,” he says.
“Plan design also comes into play, looking at features like loans, distributions and matching contributions, as well as automatic enrollment and automatic escalation. The plan sponsor needs to find out what features are going to work best for their plan and participants,” Wernette adds.
Plan advisers and providers may be an educational resource for plan sponsors, according to Wernette. “Plan advisers, along with recordkeepers, can help plan sponsors to determine what steps to take and what providers to look at.”
He adds, “There is a lot of material out there for plan sponsors, ranging from defined contribution investment only (DCIO) wholesalers to The Plan Sponsor University program. The challenge for plan sponsors is how to process all that information to make a choice on a provider. And also to be careful of educational forums that are really disguised sales presentations.” The Plan Sponsor University is an online and in-person workplace retirement plan certification program for business owners, benefits specialists or other employer fiduciaries for which Wernette lectures.
Education programs for plan sponsors should focus on the education itself and helpful processes for their plan, rather than focusing on a particular software platform, says Wernette. He contends that having a university classroom-type setting, featuring interaction and a sharing of ideas among attendees, is a far more effective approach.