IMHO June 22, 2008

IMHO: “Swimming″ Pool

Having just spent most of the past week in Chicago at our annual Plan Designs conference (bigger and better than ever, I might add!), my head is still swimming with new ideas, modifications of existing “assumptions,″ and the occasional validation of the “tried and true.″
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I’m dedicating this week’s IMHO to a rough summary of some notes I took during that time (in some cases, I have “refined’ statements to be more declarative than they were presented to make a stronger point):


A prudent process helps you win in court; a good result keeps you out of court in the first place.

Lots of people have already decided who they are going to vote for in November.

Automatic enrollment (still) isn’t for everyone.

Some people who nod their head knowingly when you start talking about glide paths don’t have a clue what you are talking about.

In an era where asset-allocation solutions dominate, you’re better off picking the best target-date fund(s)—and then finding a recordkeeper that can/will accommodate that selection.

Target-date fund benchmarks are available—but they incorporate certain beliefs/assumptions on the part of the index maker (though that’s not exactly radical, IMHO. The S&P 500 also incorporates certain beliefs/assumptions in its composition).

Nobody (except perhaps the lawyers who wrote them and the regulators that mandated them) is actually reading all these participant notices.

We’re getting ready to know more about fees charged than some ever thought possible—then, we’re going to have to be taught what to do about what we (now) know.

Lots of plan sponsors are “OK’ with the fees they are paying—but they aren’t sure that they are “reasonable.’

Retirement income is an “easy’ sell, but still a tough “buy.’

Mentioning that you’re thinking about beginning a provider search (even if you’re not) is an easy way to gain a quick fee/service concession.

Tax breaks associated with tax-deferred savings and employer-sponsored health care add up to a lot of money—and some in Washington want to spend that money other ways.

More people (still) seem to be worried about the 25 basis points being split between the recordkeeper/TPA and adviser than the 80 basis points being spent on investment management.

There is an inherent mismatch when revenues are based on something (assets) that has very little correlation with costs (plan structure and participant count).

Most plan sponsors still have a better chance of being struck by a meteor than being sued by a plan participant.

Editor’s Note: If you were at Plan Designs, and have some comments/notes of your own to add, please email them to me at nevin.adams@plansponsor.com

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In Practice June 22, 2008

Using Plan Data to Improve Features and Operations

In addition to facilitating administrative and fiduciary functions, retirement plan data can help plan administrators decide on value-added plan features and services.
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So asserts a white paper from MassMutual’s Center for Behavioral Research. In the report, “Why Data Matters: Generating Value from Retirement Plan Data,” MassMutual points out that the value-added plan services include more actionable communications; targeted marketing of the retirement plan; streamlined data outsourcing; and more proactive, consultative Employee Retirement Income Security Act (ERISA) advisory services. These plan services can reduce a plan sponsor’s workload, increase plan understanding and participant engagement, and make it easier to meet fiduciary obligations.

“[A]bundant electronic records and robust analytical engines provide an opportunity for these providers, plan sponsors and intermediaries to gain fresh insight into retirement plans and participant behavior. And these insights pave the way for meaningful actions,” the report says.

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MassMutual asserts plan sponsors can use targeted communications to spur participants into action. For example, to lead participants to better diversify their retirement plan assets, data can be used not only to target those participants with all of their assets in one investment, but also can target individuals based on the type of investments they have selected and their ages. Participants can then be provided clear steps to induce them to take action.

The report points out that plan data allows sponsors to monitor the effectiveness of plan features and participant communications and to fine-tune plan design or future communications. Data can also be viewed as a predictor of future plan activity, MassMutual suggests. For example, increased loan modeling by participants can predict the number of future loans from the plan.

The report notes that sponsors should use data not only from a recordkeeping system, but also from call center logs and participant Web sites.

Benefits of Data-gathering Systems

In its white paper, MassMutual asserts that allowing analytical systems to transform the immense quantities of plan data into actionable information allows plan sponsors, intermediaries, and providers to create value for participants not only through the addition of plan features and services, but by freeing up their time for more efficient use. For example, outsourcing salary deferral maintenance with a retirement plan provider frees a plan sponsor from collecting and maintaining deferral percentage change requests from individual participants.

Data-gathering systems also aid sponsors in their fiduciary functions. Summarization of data becomes information that can provide a framework for plan-level decisions, which “lends consistency to the decision-making process and also clarifies the future consequences of administrative and strategic actions,” the report says.

Sponsors can also use automated systems to track the ramifications of plan decisions, which can provide validation of a decision or allow fiduciaries to quickly diagnose and resolve any problems. According to the report, data allows fiduciaries to make decisions that take into account the majority of plan participants as opposed to a vocal minority.

The white paper, “Why Data Matters: Generating Value from Retirement Plan Data,” can be downloaded here.

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