Compliance September 11, 2012

PANC 2012: Drafting Disclosures

Plan sponsors have a fiduciary obligation to avoid prohibited transactions or overpaying for fees – which is where 408(b)(2) fee disclosure regulation can help.
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“This arguably is just a way to help [plan sponsors] accomplish that” from the Department of Labor’s (DOL’s) perspective, David Kaleda, partner at Alston & Bird LLP, told attendees of the 2012 PLANADVISER National Conference.

Now that the 408(b)(2) deadline has passed, what should plan sponsors do going forward in order to meet fiduciary obligations, and how can advisers help them checklist the process? To begin, plan sponsors who did not receive 408(b)(2) statements from service providers – or did not receive adequate information on those statements – should send a notification letter to the provider, said Al Chingren, vice president of value-add sales for American Century Investments.

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If the provider fails to send this information to the plan sponsor, the sponsor must report this to the DOL, Kaleda stressed. Once the sponsor receives the disclosure, it must be reviewed. “The point is you can’t ignore the notice,” he said.

Panelists acknowledged that there are many gray areas when it comes to disclosure, and DOL guidance is still needed, Kaleda said. For example, plan sponsors must determine if Employee Retirement Income Security Act (ERISA) reimbursement accounts and marketing allowances are considered indirect compensation and whether they must therefore be disclosed under 408(b)(2).

When reviewing disclosure statements, plan sponsors must determine if fees are reasonable, as well as document the entire process, said Vincent Morris, president of Bukaty Companies. One way to compare costs is through benchmarking reports, he suggested.

Chingren said he does not expect the DOL to issue benchmarking guidance, but the important thing is to show a process and how services match up against expenses is adequate. “This is not a low-cost decision,” he said. “It’s matching up value of services with the cost of providing those services.”  

In Practice September 11, 2012

PANC 2012: Creating Better Savers

Participants have expressed anxiety over retirement readiness, Joe Connell, managing director of Sheridan Road Financial, told attendees at the 2012 PLANADVISER National Conference in Orlando.
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Panelists discussed ways to improve savings rates and raise consciousness among retirement plan sponsors as well as plan participants.

“You can’t plan if you’re just an accumulator,” said George Revoir, senior vice president, distribution, John Hancock Financial Services. The mindset of participants and of the industry needs attention, and sponsors need to develop strategies that examine motivation and activity.  “We have to make decisions as an industry, as a as a provider, as a vendor, decide what a saver is,” Revoir said. Some of the decisions are what we’re going to market, and what do participants need to do to get to retirement readiness.

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Stuart L. Ritter, vice president and certified financial planner, T. Rowe Price Retirement Plan Services Inc., was critical of the 3% deferral. “Saving 3% for retirement is like going to the gym for 6 minutes,” he said. The goal should be 15%, according to Ritter. “We don’t design plans,” Ritter said. “We design outcomes. More people, saving more money and being more successful.”

Participant action and plan design are the two ways to create change, said Kris Gates, assistant vice president, marketing communications, MassMutual Retirement Services. If someone has a dollar of income, they can spend it or save it. Examining the consumer goods industry to see how they get people to spend money can yield some insight into how to influence behavior. “We should use the same tactics to get them to save,” Gates said.

 

 

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A panel attendee asked for new ideas and specific examples that can increase participation. One sponsor treats enrollment like a health care plan: participants have to consciously opt out, Connell said. The same sponsor uses incentives such as raffles for those who sign up. Prizes can be gift cards or a day off, and anyone who is enrolled is eligible to participate in drawings, not just new enrollees.

Gates noted that a relationship manager once dressed as a chicken and visited plan participants holding a basket of retirement eggs. Revoir mentioned a small-plan sponsor who matched employee contributions up to 6% and took personally every employee who did not participate, asking to be told the name of every employee who was not participating so that he could talk to them and find out why.

A member of the audience asked about the idea of a re-enrollment that would default all participants into a target-date fund and have them opt out in order to increase participant enrollment.  

 In a perfect world I’d auto-enroll everyone at 10%,” Revoir said. But the key to raising participation is getting people in as early as possible, he pointed out.

Another audience member wondered if participants would be angry at auto-enrollment features. “What we hear from our participants is thank you,” Ritter said, “not pitchforks and torches.” Discussions about participation need to be framed properly.  

According to Gates, MassMutual’s research on participant viewpoints showed that auto-enrollment is popular with most employees who said that saving for retirement was on their to-do list, and they like having someone do it for them.


 

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