March 26, 2019

2019 RPAY – LHD Retirement of LPL Financial

Reported by

Over the past 12 months, LHD Retirement, in Indianapolis, has been on a mission to help non-savers address the financial concerns of today that keep them from saving for tomorrow. LHD identified a group of employees who needed to save more in their company’s retirement plan—they were typically lower-income with little confidence in financial matters. Rather than discussing retirement savings, LHD’s campaign focused on more pressing issues for these workers such as budgeting, debt reduction and building an emergency savings account.

“For this group, retirement planning was so far removed from the everyday that the most effective strategy was to help them first build a solid foundation so they could start to plan for the future,” says John Ludwig, a partner in the firm and its founder.

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Although the campaign takes the “long approach” to retirement saving, it aligns with the ethos of LHD: “Do the right thing.”

“Just because a group may not be in a position to immediately start saving for retirement does not mean that it’s unworthy of our help,” says Ludwig.

So far, feedback from this campaign has been positive, and employees have been using the advice to improve their financial situations.

It all goes back to the organization’s mission to build trust with participants. Years after the financial crisis, the retirement industry is still struggling to gain people’s trust, Ludwig says.

For that reason, LHD conducts its own financial wellness and education campaigns. None of its educational meetings are outsourced to third-party vendors, and participants are encouraged to ask LHD advisers questions directly. The team wants plan sponsor clients to feel like they are affiliated with LHD itself, rather than with a third-party recordkeeper.

“By being the singular resource for plan participants, we’re able to build trust over a long relationship,” Ludwig says. “Our hands-on approach to employee education aims to drive participation and deferral rates higher on the plans we advise.”

LHD advisers strive to make meetings fun and high-energy, and they also present the information in a way that participants can apply to their daily lives. By engaging participants, the LHD team says they can gain insight into their thought processes and use this information to inform committee decisions and build strategies that can improve plans. Although plan design and investment selection play a big role in helping participants with retirement readiness, nothing beats financial wellness for improving people’s overall financial picture, he says.

When it comes to plan design, though, the LHD team believes in adding automatic features to fight participant inertia.

“Auto-enrollment, auto-escalation and re-sweeps can have immediate benefits for benchmarking statistics,” Ludwig says.

Team members also believe in designing match strategies that can help increase participant contributions, and encouraging plans to simplify their investment menus. An investment menu that is too complicated or has too many options can intimidate employees and result in improper asset allocation. LHD suggests reducing the number in a plan to around 10 core options, with a target-date fund (TDF).

LHD benchmarks fees annually but will do it more frequently if the demographics or the needs of the plan change. In addition, every three to five years, the company performs a blind bidding process for every plan, in that way getting vendors’ real prices for different levels of service.

One of LHD’s biggest pieces of advice to clients is that they must empower their participants to create their own retirement outcomes. The LHD team members say the same rings true for themselves; at LHD, each employee takes ownership of his work and makes it his duty to lead plans and participants to successful retirement outcomes.

“At the end of the day, a plan sponsor can have the perfect retirement plan, but if participants are not utilizing it correctly or effectively, it’s a wasted investment,” Ludwig says. —Corie Hengst

March 26, 2019

2019 RPAY – StoneStreet Equity, LLC

Reported by

John Manganaro

The team at StoneStreet Equity, in White Plains, New York, is driven by its pride in helping participants who have a diversity of job types, ages, backgrounds and levels of investment knowledge enjoy a secure retirement.

Last year, for example, StoneStreet helped a large regional bank client improve its participants’ retirement readiness through several key changes. The bank hired StoneStreet to consult on three main goals: 1) to merge its two large 401(k) plans after a recent acquisition; to perform a request for proposals (RFP) for its 401(k) recordkeeping services; and 3) to de-risk its defined benefit (DB) plan.

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With these objectives in mind, StoneStreet conducted the RFP, resulting in a 75% reduction in the 401(k)’s recordkeeping fees. This created a savings of over $300,000 that went straight to the participants. In addition, the advisory group implemented automatic re-enrollments of non-deferring participants, which increased plan participation from 86% to 97% year over year.

The client’s plan already had automatic enrollment, but StoneStreet increased the deferral rate from 3% to 4% and added automatic escalation, up to 10%. For the DB plan participants, StoneStreet created an outreach program to educate them on the most tax-efficient options for receiving their benefits. And when it came to education, the firm worked with the 401(k) provider to conduct group and one-on-one meetings.

Reflecting on its overall client experience, the StoneStreet team sees two major issues facing plan sponsors. First, participants are unsure how to appropriately and effectively manage their 401(k) investments. Second, employees have financial needs that extend beyond the 401(k) plan.

To address the first issue, StoneStreet has been working with 401(k) providers to enhance their managed account solutions. “We believe participants in a managed account will make better investment and saving decisions, will be more engaged and will achieve better retirement outcomes,” says Spencer Goldstein, principal and chief investment officer (CIO) at the firm.

As for the second financial stressor, participants can find help through StoneStreet’s Financial Elements (F.E.) financial wellness program. Through F.E., participants can take advantage of a financial wellness website that provides guidance on topics including budgeting, credit card debt, student loans and retirement income planning. They also have the chance to speak with an FE mentor, who can help them set financial goals.

“Outbound calling, goal-setting, and follow-up calls are key differentiators that help participants overcome inertia,” says Goldstein.

StoneStreet is currently rolling out F.E. to a $50 million 401(k) plan that also has a $175 million employee stock ownership plan (ESOP). The plan sponsor’s goal is to help employees have a better understanding of their ESOP diversification opportunities, as well as the tax advantages of rolling this money into the 401(k) or an individual retirement account (IRA). StoneStreet’s F.E. mentors will contact all ESOP participants to provide guidance on their options.

StoneStreet has now implemented fee levelization for most of its plans, currently having 50 such plans under administration. This has reduced clients’ investment management costs by choosing the most efficient share class of each investment. In levelized pricing, “moving all share classes to zero revenue-sharing funds is often not the most efficient from a cost perspective,” Goldstein explains. This is because these funds oftentimes have higher investment management fees, so participants would benefit more from a different share class with a revenue credit and a lower investment management fee.

StoneStreet has also focused on fiduciary outsourcing, moving from 3(21) to 3(38) for many of its defined contribution (DC) and defined benefit clients. It has also transitioned Employee Retirement Income Security Act (ERISA) 3(16) responsibilities from several DC and DB clients to an independent third-party administrator (TPA).

“We view our role, first and foremost, as advocates for our plan sponsors and their employees,” Goldstein says. “As we work with recordkeepers and plan providers, we are constantly pursuing enhanced services and promoting best practices.” —Corie Hengst