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MAGAZINE

All in the Design

The architecture for running a retirement plan

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Just as a builder begins with a blueprint before embarking on the construction of a building, plan design is an integral part of the development of a successful retirement plan. Plan design is the process of choosing the type of plan and the array of options that will meet the needs of a company and its employees.

Although there are prototype plan documents, allowing plan sponsors to put in place a very basic plan design, there are also seemingly infinite options and ways to design a host of plan elements, allowing plan sponsors to create a plan as unique as the sponsoring company—if it is so inclined.

As the following “Successful Plans” section explains, to properly design a defined contribution (DC) plan, a retirement plan adviser must help the sponsor consider employee and plan demographics, the financial and resource boundaries of the sponsoring company, and the options available from the recordkeeper and third-party administrator (TPA).

Automated plans have also proven to be a smart design, as they considerably boost participation rates and retirement readiness. When automating enrollment, advisers must help sponsors consider deferral rates, automatic escalation and how best to construct a company match.

Benchmarking plans and adviser services is becoming more and more common, to the point of developing into a best practice. Particularly in light of the Department of Labor (DOL)’s 408(b)(2) fee disclosure rule, advisers need to benchmark their fees and services and communicate their value to sponsors. They also need to benchmark a plan against similarly sized plans and comparable industries, looking at: participants’ deferral rates, vesting schedules, quality of services and asset allocation, among other factors.

Finally, the adviser and sponsor have to decide if they want to augment the plan with outsourced, expert fiduciary support. In the following pages, we discuss all of these issues, including what to consider when hiring an outsourced fiduciary—and how advisers can remain a critical part of the outsourced ­fiduciary process by vetting and overseeing fiduciary partners.