Compliance July 9, 2007

Representative George Miller on a Mission, Panel Reports

Advisers can count on new regulations relating to retirement plan fees and disclosures in the near future but it is unclear whether those will be authored by Congress or the regulators.
Reported by

In Congress, U.S. Representative George Miller of California is driving a campaign focusing on 401(k) fees being driven by four main factors, according to Bridget Flynn Hagan, Senior Director of Government Relations at Nationwide: having the Democrats, who are being very aggressive in oversight of the Bush administration, in control of both houses of Congress; the recent Government Accountability Office report on plan fee disclosure; the recent litigation in this space, specifically the wave of suits filed by St. Louis law firm Schlicter, Bogard & Denton; and increased media reports.

As the chair of the House Education and Labor Committee, Miller has held hearings to discuss the issue and seems to be focusing most on participant level disclosures, Hagan said, speaking on a panel at PLANSPONSOR’s Plan Designs conference. She predicted that disclosures to the participant could become very specific and personal. Anticipating that Miller is going to soon be presenting a bill mandating new disclosures to participants, Hagan predicted that because Miller has a close relationship with Democratic House Speaker Nancy Pelosi, such a bill passing through the House seems likely.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

It isn’t as clear whether the Senate will also be able to also pass a bill regarding fees although it might hold hearings in the fall she said. However, if there is a resulting bill, Hagan predicted that it likely will be more generalized and deal with investment fees on a broader level.

Focus on Revenue Sharing

If nothing else, attorney Steve Saxon, Principal with Groom Law in Washington, D.C., said, the lawsuits filed by the Schlicter firm did create enough interest that the industry is now presented with a unique situation in which Congress, the courts, and the regulatory bodies are all focusing on the same thing.

In his opinion, Saxon said, revenue sharing is under attack. However, Sherwin Kaplan, Council, Thelen, Reid, Brown, Raysman & Steiner, LLP, disagreed, saying he does not think that revenue sharing specifically is under attack but that instead, the focus will be on general disclosures, even disclosures in situations where such notifications are nearly impossible.

Further, the Department of Labor (DoL) is not waiting for Congress, Kaplan asserted, saying the regulator is taking initiative on its own on the 408(b)(2) project, focusing on what a plan fiduciary know before entering a relationship with a service provider.

Kaplan said there are two questions that must be asked of every service provider: first, please tell me all sources of income you will be receiving from any party as a result of my business and second, tell me all payments you will be making to any party as a result of my business. These answers should be delivered in writing and the plan sponsors should keep these answers for a record, he said.

Beyond Disclosures

Miller is also looking beyond just disclosure, Saxon commented, saying that Miller is also reported to be considering proposing a radical revamping of permitted retirement plan investments in large measure restricted to traditionally less expensive index offerings- “just real cheap investment funds.”

“If it gets through,” Saxon said, “that would be a big deal.”

In Practice July 8, 2007

Participant Education Still Important in Automatic Era

Although the Pension Protection Act has officially ushered in a wave of automation to retirement plans, education is still a vital part of a successful 401(k) and advisers can help plan sponsors measure the effects of their education campaigns.
Reported by

In fact, despite this being the era of auto enrollment, “I believe nothing has changed,” Sheila Wales, Vice President and National Director of Education Services at Transamerica Retirement Services; “We need to educate plan sponsors that participant education is still important.”

Automation is promoting defaulting into the retirement plan with a 3% deferral, but the industry knows that is not enough to accumulate a proper retirement savings, Wales explained. Therefore, it is important to educate people to stay in the plan and hopefully they will take more of an interest in their employer’s offering.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

John Mott, Corporate Client Group Director & Senior 401(k) Advisory Member, at Smith Barney, agreed with Wales, asserting that with a slowdown in the economy, increases in the cost of living, participants need to be engaged to understand why they should save and what to save. Although automatic enrollment can be a strong tool, Phyllis Klein of CAPTRUST Advisors also commented that people typically targeted in default funds are often the most transient part of the workforce, which means they are most likely to cash out when they leave the firm.

Companies need to take the initiative to educate employees, but must figure out what the best way to engage their employee base is – whatever specific educational tool a plan chooses to use, the effort won’t be easy, Mott said. Klein suggested that the key to connecting to participants is to be able to act in the moment the education is being delivered.

“To get them to make a change, it has to be high touch,” Mott continued. “With some people, you have to spoon feed them.”

Measuring Results

Although education is important, it is equally important not just to offer it, but to benchmark the plan and participants and understand who is doing what, Mott said.

If a sponsor hasn’t yet spoken to the retirement plan provider about getting plan data, he should, Klein said. Wales said that Transamerica is able to offer impact statements that show non-participants what the benefits would be if they were to join the retirement plan.

However, Klein commented, the numbers are only worthwhile if you take the time to look at them – which can be difficult for a plan sponsor wearing a lot of hats, but is something the adviser can help with.

Case Study

Motorola’s director of Global Rewards, Randy Boldt, shared his experiences with educating an auto-enrolled participant base after the company moved to auto-enrollment seven years ago. He said the company tried various meeting types – live meetings, webinars, and workshops – to see how they could best engage their participants.

According to Boldt, Motorola had 95% participation before instituting the auto enrollment. After, 54% of new hires remained at the 5% default, 30% increased their deferral, 6% decreased their savings and 10% opted out. Non-participants now get an annual targeted communication from the company, as do those who are not saving up to the company match level and those who are only saving between 5% and 8% of their salary.

When examining a participant communication campaign, Boldt said he asks the following questions: is the communication personable, it is easy to enroll, does it offer a call to action, and how many times are the participants going to be touched during the year.

«