servicing strategies | PLANADVISER January/February 2016

Do They Belong?

Helping sponsors evaluate their options for nonactive participants

By Judy Ward | January/February 2016
Page 1 of 5
Art by Peter Diamond

When adviser David Hinderstein starts working with a new retirement plan sponsor client, his goals include helping that sponsor have a strong plan design and participant communications that reflect the mission and culture of that organization.

“Sometimes, their retirement plan is inconsistent with the culture and mission of their organization,” says Hinderstein, president of Strategic Retirement Group Inc., headquartered in White Plains, New York. That disconnect can extend to making decisions for what to do about ex-employees, retirees and workers who have stopped participating in the plan, he says.

Below, Hinderstein and others talk about issues for sponsors to consider regarding their nonactive participants.

Retired Participants
Employers need to decide whether they would prefer that retired participants stay in the plan or leave, because either influences plan design and communications decisions. “When we talk to [plan sponsors] about it, we try to get them to explain their philosophy on their retiree population,” says Rob Massa, president of Ascende Wealth Advisors Inc. in Houston. Some employers value maintaining that connection, but others do not. To give sponsors more clarity, Ascende often finds it helpful to run an analysis of what a plan’s retired participants actually do with their account. “How many have account balances left? And, for those who do, what is the size of those account balances?” he says. “If  there are very few, clearly those people who retire are taking their money out of the plan anyway.”

How a plan handles administrative fees also often influences whether a sponsor prefers retirees keep their money in the plan or take a distribution, says Grant Arends, president of consulting services at Alliance Benefit Group Financial Services Corp., in the firm’s Kansas City, Missouri, office. He finds that many small to medium-size employers have chosen to pay their plan’s administrative fees out of corporate funds. These sponsors may prefer if retirees or terminated employees roll their money out of the plan. But, for plans that have a participant-paid, asset-based fee on a declining scale based on total plan assets, sponsors may like to see retirees’ accounts remain. The resulting higher plan asset base reduces pro rata administrative fees for all participants.