PANC 2016: Overcoming Plan Sponsor Hurdles

Knowing what retirement plan sponsors expect from their advisers and how to help them.

Many winners and finalists for PLANSPONSOR’s Plan Sponsor of the Year awards cite help from great advisers for making their retirement plans great. But, some did not always have great advisers.

Speaking at the 2016 PLANADVISER National Conference in Orlando, Florida, Kimber Dills, vice president of human resources with Mental Health Cooperative, Inc. says the adviser they have now helped with a plan change that did not go over well. The company decided to auto escalate everyone in the 403(b) plan to 6% of salary deferral contributions and automatically enroll new employees at a 6% deferral rate.

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“There was a lot of push back, but we provided education and did one-on-ones with everyone concerned,” she said. “Now people are excited when they get their statement and see how much they are saving.”

Likewise, Judi Leccese, Retirement and non-qualified plans manager at Cabot Corporation, says her current adviser helped the company create a very detailed plan about implementing plan changes and was good about teaching the company about extremes and how far they could push things. The adviser did focus groups before the change, and after the change, got management to do town hall meetings with employees. The company had a leveraged employee stock ownership plan (ESOP) that was about to expire and decided not to continue with the ESOP. However, it increased the company match in the 401(k) plan and offered employer-paid financial wellness.

Discussing the problems with Mental Health Cooperative’s prior adviser, Dills said the adviser told participants that saving 2% to 4% of salary would be enough to get them to retirement security. The adviser did not focus on the plan. She said she found out the adviser was pushing supplemental products and sweeping participants out of the plan at age 55. “The plan and participants must be the focus of the adviser,” she told conference attendees.

Leccese added that an adviser should want to get to know the company and what is going on in the retirement plan. “By talking, listening and collaborating, [the adviser] helps decide what makes sense for the plan.”

NEXT: Other great adviser qualities and what plan sponsors want

Dills shared that when looking for a new adviser, she told prospects that the company’s employees needed a personal touch. One of the prospects came to meet with her and immediately opened his laptop to show her a software program he was going to test out on the cooperative’s employees. She immediately ended the meeting, telling him it was because he didn’t listen to what she wanted.

Luccese said Cabot did a very detailed request for proposals (RFP) when looking for a new provider that let prospects know they would have to come in and jump into the trenches with her. That is what her new provider did, becoming part of the Cabot team.

Advisers should also be able to work well with plan providers, both Dills and Luccess agreed. “I work with our advisers a lot, but also work directly with the vendor,” Dills said. “But they both come to education events and the vendor has a backup in case the adviser cannot attend.”

Luccese shared that Cabot has a retirement optimization team, consisting of the 401(k) provider, the non-qualified plan provider, the financial wellness adviser and the plan adviser. “At first we would do quarterly calls, but last year we had our first face-to-face meeting,” she said. “This year we are going to meet with 24 vendors, including life and health insurance providers.”

At the opening of the discussion, Alison Cooke Mintzer, editor-in-chief of PLANADVISER, polled attendees to gauge their knowledge about what plan sponsors want from advisers. The audience ranked “help with improving engagement and outcomes” as the most important deliverable from advisers, and ranked “advice on plan design and cost” second. However, Cooke Mintzer noted that PLANADVISER’S own survey of plan sponsors found the second most important deliverable is “selection and monitoring of investments.”

PLANADVISER also found plan sponsors want advisers to help employees take action, followed by provide financial wellness education. In addition, 85% of retirement plan committees said engaging participants is a concern, and recognizing retirement readiness is the biggest concern about participant behavior.

Advisers in attendance said the increased cost of health benefits was the biggest concern among their clients about the aging workforce, and the biggest concern with their retirement plan is fiduciary responsibility.

PANC 2016: Top Trends

Two leading executives discussed the new fiduciary rule, retirement readiness, income and more.

Executives from Voya Financial and MassMutual discussed 10 developments in the retirement planning industry at the 2016 PLANADVISER National Conference’s panel, “Top Trends.”

First and foremost are new regulations and policies, led by the new fiduciary rule, said Charles Nelson, chief executive officer of retirement at Voya Financial. “Each company will approach it differently,” he said. “Some may utilize the best interest contract (BIC) exemption or retreat from offering certain services. At Voya, we will utilize the BIC where it is most appropriate.”

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Another regulatory development is open multiple employer plans (MEPs), which have a chance of being “approved in Washington, and that could help us grow our industry,” Nelson said.

Second, is the growing recognition of the cost of employees not being retirement ready. “Many years ago, companies sought to limit their liabilities by freeing their defined benefit plans,” said Tina Wilson, senior vice president, head of retirement solutions innovation at MassMutual. “But that liability still exists if employees don’t have sufficient funds to retire and are financially trapped.”

Sponsors and their advisers need to ensure that participants are “funding their plan adequately,” Wilson said. “Typically, the CFO is not engaged in the plan. We looked at plans with 1,000 employees and found that, on average, it is costing them $2.7 million to $3 million a year in the liability of employees unable to retire. We must measure this cost” and call sponsors’ attention to it.

Third is the need to engineer a retirement plan for success. “401(k) plans were designed to be supplemental,” said Nelson, who then pointed to six ways advisers can help “DB-itize” defined contribution plans. Use automatic enrollment, he said, paired with qualified default investment alternatives (QDIAs) that place participants’ funds into appropriately diversified portfolios. “Optimize the match to ensure people are saving at the right levels. Use escalation, reenrollment and embrace income” options, he said.

NEXT: Outcomes
Fourth is the value of investments in driving outcomes. MassMutual has studied outcomes in detail and has learned for “savers early on, investments are irrelevant,” Wilson said. “Instead, it’s about how much you save. But at age 40, 45, investments become critical.” That’s why people at this age and older need to be invested in “target-date funds, managed accounts or custom portfolios that are a diversified default,” she said.

Fifth, it is important to apply behavioral science to retirement innovation. “Innovation is critical and we haven’t been that innovative with enrollment,” Nelson said. “We don’t think everything should be digital. Choose different platforms” for different touch points, he said.

Sixth, are data-driven asset allocation solutions. By this, Wilson said, the industry needs to embrace smart data platforms where demographics are tailored to “individualized circumstances to select [a certain] glidepath or custom allocation. It’s much more proscriptive on am individualized level.”

Seventh is weighing income replacement versus account balances. “Income is the new outcome,” Nelson said. “Plan sponsors are becoming increasingly focused on income, and that is how you are going to be measured going forward. But include all sources, including IRAs and Social Security.”

Eighth is finding solutions for income. “Income is also very personal,” Wilson said. “Solutions need to work for each individual. No one size fits all. It must be a set of solutions that are worked through an adviser, not a tool.”

Ninth is financial wellness that extends beyond the defined contribution plan. This means “holistic solutions to solve income stream needs. Income needs fluctuate in retirement, so solutions should be designed accordingly,” Nelson said.

Finally, participants need help navigating healthcare costs and building true financial wellness. “Because participants say healthcare costs prevent them from saving more for retirement, we need to talk about a benefits budget to optimize their spending and help them make better financial decisions,” Wilson said.

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