The architecture for running a retirement plan
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
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