Client Service June 5, 2015

PSNC 2015: The Evolution of Education

Education is moving toward the value of saving, the importance of starting early and financial wellness.
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The evolution of retirement plan participant education is happening because providers have better tools to engage participants, and technology makes it easier to get information about participant behaviors and outcomes, Joe Connell, director of Retirement Plan Services at Sikich Retirement Plan Services (Formerly Retirement Plan Partners), told attendees of the 2015 PLANSPONSOR National Conference in Chicago.

Sean M. Ciemiewicz, a principal at Retirement Benefits Group, added that more plan sponsors are offering tools to get participants to take immediate action at meetings, rather than go back to their desk and think about it.

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The first hurdle is getting participants’ attention, said Michelle Barrett, manager of University Retirement Programs at the University of Rochester, a 2015 PLANSPONSOR Plan Sponsor of the Year finalist in the 403(b) category. She shared how the university uses gaming to get participants involved in learning. The “What’s Your Financial IQ?” game sends participants a block of questions each day, and they can measure how their answers compare to their peers’. For the “Square Up Your Savings Challenge,” participants were given tasks to complete, such as watching a financial education video, and for each task completed, they received a square on a map of the university. Ten winners were chosen from the squares on the map to receive a prize.

Connell noted he likes the idea of using incentives to get people to engage, much like incentives are used with health care wellness programs.

Richard Hartman, corporate benefits manager – Retirement Plans at American Woodmark Corporation, a 2014 PLANSPONSOR Plan Sponsor of the Year finalist in the Corporate 401(k) – $50MM to $1B category, said data can also get participants’ attention. American Woodmark’s third-party administrator (TPA) uses participant data it has in its system for a modeling tool called My Forecast. It shows participant their target savings and where they are in reaching that target. “Sometimes showing them this gap encourages them to engage more,” he said.

NEXT: Developing your message.

 

Connell pointed out to attendees that nearly everyone had no financial education in school, so plan sponsors have to start at the beginning with their message to participants. And, he suggested, plan sponsors can provide education in little snippets so participants do not get overwhelmed.

Hartman said his firm used to do typical messaging about enrolling in the plan and asset allocation, but when they moved to automatic enrollment, automatic deferral escalation and automatic investment allocation vehicles, that provided the opportunity to broaden the message to financial wellness. Some of his employees do not even have a checking account, and most do not have a savings account other than the retirement plan, so they need basic messaging about establishing a “rainy day” fund. “We talk about things that are current for them,” he said.

Ciemiewicz added that plan sponsors need to make the message fun. “If you just have someone stand before participants and talk about budgeting, people will tune out,” he said. “Plan sponsors need to make messages visual as well as auditory.” He suggested attendees check out the YouTube video “Blind and Outnumbered” and share it with employees.

Connell noted that participants do not get a lot of positive messages, and seeing recommended savings rates or targets can overwhelm them. Rather than using industry data or stats from the media, he suggested that plan sponsors use the numbers from their own plan to encourage participants. For example, a 5% average contribution rate is not outstanding, but telling participants that the average contribution rate in the plan is 5% of pay will encourage those saving below that level to bump up their rate or begin to save.

NEXT: Targeted messaging and measuring results.

 

According to Barrett, the University of Rochester has developed different messages for different groups of employees. Each year, the university holds a half-day seminar for employees age 50 and older, and a guest, with someone from the Social Security Administration (SSA), insurance providers and retirement plan providers to help employees with retirement planning. The university also has a Women-to-Women education series presented by women for women.

Connell added that Generation X (ages 35 to 50) is another good audience to target because they have many financial responsibilities tugging at them during this time in their lives. Ciemiewicz said brand new employees are also underserved. “They are focused on learning the job and making a good impression, and are often handed a packet of information with paperwork to sign,” he noted. He said plan sponsors should get employees engaged with financial education from Day One.

“Don’t be afraid to try new things,” Connell encouraged attendees. “If no one shows up, that’s OK, you can adjust your strategy.”

How do plan sponsors know if all of their education efforts are working? Hartman said his firm used the 90-10-90 metric from the book “Save More Tomorrow,” by Shlomo Benartzi— a goal of 90% of eligible employees contributing to the plan, a 10% average deferral rate by participants and 90% of participants using some type of advice for their investment decisions. He said American Woodmark is working on measuring participants’ retirement readiness.

Ciemiewicz noted that retirement readiness is not the same for every employee. For example, someone who lives in Tennessee may not need as much income in retirement as someone who lives in New York. Using the same retirement readiness goal could discourage some participants. He suggested plan sponsors keep other factors in mind to get employees to reasonable goals.

Providers are very important to measuring success of education efforts, Connell said. “They have the data, but make sure they give it to you in meaningful ways,” he said. He added that traditional metrics such as participation rate and deferral rate are still good measures of success.

Client Service June 5, 2015

PSNC 2015: Managing Administrative and Investment Fees

According to two panelist experts speaking at PSNC 2015, relying on publicly available fee benchmarking is generally not a marker of top-performing plans and plan sponsors.
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“We really only do custom fee benchmarking with our clients,” said plan adviser Barbara Best, principal at Capital Strategies Investment Group LLC, during a panel session at the 10th annual PLANSPONSOR National Conference. “For the most part, you can drive a truck through the results of public benchmarking.”

Best’s firm advises on some $10 billion in plan assets and seeks to deliver a holistic approach to retirement plan services. She says working with this book of business clearly shows customized and thoughtful plan fee benchmarking leads to greater understanding of plan operations and plan success—and that choosing the wrong resources for fee benchmarking can actually decrease understanding of whether a plan is getting a good value for administration and investment services.   

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Also on the panel was Dan Peluse, director of corporate plan services at Wintrust Wealth Management, a firm touching on $1 billion in qualified plan assets. He agreed that fee benchmarking reports that compare a given plan sponsor’s pricing with a general industry average—or even a random sampling of plans from across the defined contribution (DC) universe—can’t effectively demonstrate whether or not a sponsor is getting a good deal on fees.

“You need to be folding certain assumptions about your plan into any fee benchmarking that you’re doing,” Best noted. “One of our plan clients has a decentralized payroll system, for example, and that has huge implications for the complexity of managing deferrals and administration in a compliant way. That’s the type of thing that has to be baked into fee benchmarking for it to be truly informative from the price-value perspective.” 

NEXT: Complex plans might call for an RFP.

Depending on the complexity of a plan, Peluse suggested conducting a full request for proposal (RFP) to get a pulse on how current fees align with what may be available in the plan services marketplace.

“I absolutely agree there can be serious accuracy and comparability issues with public benchmarks,” Peluse said. “The only way to get the real picture of whether you could get better pricing for the plan services you require is to go out to the market and see what the market is yielding.”

Peluse said he understands many plans won’t have the resources to do a full RFP each year, but he believes all plans should do this type of RFP-driven fee analysis at least every three years. During the interim, customized benchmarking reports can be helpful, he added.

Best suggested that the frequency of RFPs will depend on other factors—such as firm growth or longer periods of strong returns, which can quickly push a plan into new territory in terms of its assets.

“It’s a lot of work for sponsors, there’s no doubt,” Best said. “One bright spot, given the increase in fee disclosure, is that providers are more aggressive today in terms of pricing, and it’s leading to better deals and service for clients.” 

Given all this, what does a good benchmarking report or RFP look like? Peluse urged sponsors not to settle for very high-level comparisons that don’t dig down into the specific pieces of running a plan. 

NEXT: Income products can be somewhat murky in benchmarking.

“We work with our clients to segregate all the costs and understand each piece of running the plan individually,” Peluse explained. “What’s the fee for recordkeeping? What’s the fee for advisory services? What’s the investment management fee? These are all distinct and should be treated that way. We like to lift up the hood and look across all these cost components so that we can get the best deal on each.”

Both Best and Peluse observed that the use of guaranteed income products can create a lot of gray area during fee benchmarking. “It’s hard to do apples-to-apples comparisons in a lot of cases,” Peluse said, “so working with a trusted adviser partner to do this can be really helpful for sponsors.”

Best also warned that, “when you’re doing an RFP and you get the pricing back, you need to ask for all the transaction fees and incidental fees, too. Some providers may charge fees you’re not thinking about—fees for outstanding loans, for example, which can have a big impact.”

The panelists concluded the session, which was moderated by Attila Toth, partner and co-founder of Portfolio Evaluations Inc., by describing the process of sharing fee reports with an incumbent service provider.

“If they come out on top, that’s great, and you have a documented process that you can point to, to show you have considered the fees and value you’re getting,” Best said. “But what happens if the incumbent doesn’t come out on top? We don’t show them which providers said what, but we do give them the exact results. The incumbent almost always will come down to meet you and the range you need. You can really have a strong tool in these negotiations if you have the customized benchmarking or a full RFP report that shows what the current marketplace is doing.” 

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