Practice Management May 1, 2024

Top Advisers Talk Plan Design

Advisers navigate auto and personalization options to maximize plan design.
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Art by Clara San Millán

The very title “adviser” may make it seem like the best way to approach plan sponsor clients about how to organize their workplace retirement plan is with answers. 

But Dee Spivey, a retirement plan consultant with SageView Advisory Group, says when having a conversation with a client on plan design it’s better to start with a question: “What is your goal?”  

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Spivey, who is based in Richmond, Virginia, tries to determine the plan sponsor’s objectives specific to the retirement plan, whether the goal is simply to provide a benefit and check a box, or to fundamentally help participants find financial success in their futures. To get there, it generally takes more questions before getting into the answers. 

“You’re also going to need to know about the kind of structure of their organization,” she says. “What type of employees are they going to have? What’s their turnover? Is the goal to recruit more individuals? What type of costs [are they comfortable with]—meaning are they looking to make a match or to make a contribution?”  

She says that knowing the demographics of the organization should be a priority, along with understanding the compensation levels and age range. She adds that learning about the plan sponsors themselves is important.  

“We place a huge focus on understanding the plan sponsor’s ability to administer the plan,” she says. “What kind of teams do they have internally? What kind of support will they need?” 

Design Concepts for Plan Maximization 

Andy Bush, a partner and financial adviser with Horizon Financial Group, along with Bill Bush, a financial adviser at the firm, think about the usual design concepts to maximize for the plan sponsor.  

Andy Bush says a safe harbor match is the first basic plan item that comes to mind. This feature tends to have the greatest impact on a plan as it incentivizes employees to put their own dollars down. Additionally, it helps with some of the plan testing in which more highly compensated individuals can max out their contributions without the worry of getting a return because of failed testing.  

“Some of our plans have done a safe harbor match, and then they’ve done a discretionary match on top of that, which has yielded probably the absolute best return,” Andy Bush says. “It allows a lot of money to flow into the plan. It increases participation tremendously.” 

For example, if a person puts in 4%, they get 8% from the company with a safe harbor match and a discretionary match, which is almost a “foolproof” return, according to Andy Bush.  

Bill Bush adds that the auto-enrollment feature has significantly increased participation for most plans, which will have to be implemented for any new plan by 2025 unless an exception applies.  

Andy Bush says, however a plan is working, his team will discuss and make plan design adjustments as needed during every annual review. The team makes sure that the plan is functioning, while adding any features the client is looking to enhance it with. He noted that it’s not a one-time conversation, but a continual one to ensure they are putting a plan together that works best for participants. 

“Those conversations can lead into other paths like non-qualified plans and other options to help boost [participant’s] overall benefit,” says Bill Bush.  

Andy Bush’s main piece of advice for successful plan design is to have a strong relationship with third-party administrators. 

“A lot of times, they’re the ones that can help identify the impact of a plan design that will bring clarity to the business owner, better than just a conversation,” he says. “I believe those relationships are vital.”  

Education Is Key 

Todd Nuttall and Dave Gardner, partners at Caliber Wealth Management, say the biggest mistakes they see in plan design is that plan sponsors may not be focused on the education aspect of the plan for participants.  

According to Gardner, this could be due to taxes and misalignment at an ownership level. Tax benefits are allowed to be passed through to the owner from both participating in the 401(k) and from some of the expenses that come from running the 401(k). If employers are focused on these elements only, they may miss the fact that participants need strong education over time for the plan to really work well and be useful.  

“Another thing that creates a little bit of misalignment is that maybe the plan sponsor is trying to recruit a certain group of employees and they know that a 401(k) is required in order to go out and recruit those employees,” says Gardner. “Recruitment is one great tool of the 401(k) but it does lead to a little bit of misalignment if we come up with a longer-term view and perspective of what the 401(k) plan is. It’s a real benefit, and there’s some complexity to it that we need to be educating our participants on.” 

Another reason plan sponsors aren’t placing a premium on education is because they assume they are already educated on 401(k)s, says Nuttall.   

“The second part of that is I think there’s a little bit of a hesitation due to, ‘If we hold these brown bag lunches every month to bring in the adviser to educate, does that take away time from them being productive employees and interrupt the flow of things?’” he notes. 

Nuttall says that, in fact, the opposite effect is true. Providing education to employees allows participants to get the education that they need so that they can have peace of mind and not be stressed out as much at work about finances and retirement. This in turn makes them better employees because they’re not worried as much about their personal finances or their retirement plans. 

“What we’re finding is that if we reengage our plan sponsors and educate them, then that education is matriculating down into the employees at a better level,” says Gardner. “We step in and reeducate those plan sponsors on what’s out there. We do it in a way that’s not overwhelming to them but can be an ‘ala carte option’ to select the plan features and provisions that are going to work for their goals.” 

In Practice April 8, 2024

401(k)s to Match the Mission

Just Futures has brought to market a value-driven retirement plan investing model it says is especially in demand by nonprofits.
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Art by Tilda Rose

When everyday savers are asked if they want to invest in line with their values, they often say yes—particularly among younger generations.

A 2023 U.S. Bank study, for instance, found that more than half of Generation Z (65%) and Millennial investors (59%) are motivated to invest in companies they care about, with more than half that group even willing to accept lower than average returns to do so.

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But survey answers do not always translate to the real world, particularly when it comes to defined contribution plan investing. According to a Callan Institute survey of U.S. DC plans released in March, only 15% of plans include environment, social or governance funds, and 9% are considering them; 76% do not have them and have no plans to do so.

George Guerrero

This March, Just Futures Advisors LLC entered the responsible retirement investing scene with a proposition to try and increase uptake: turnkey 401(k) and 403(b) retirement plans designed around social justice causes ranging from racial inequality to climate change.

CEO George Guerrero says the firm began with a hunch that many nonprofit workers, in particular, lacked access to a workplace retirement plan that aligned with the values they brought to work every day—a theory he says a 2022 “listening tour” with some 200 organizations bore out.

“When you ask a nonprofit professional what’s important to them in a retirement plan, values alignment is right there at the top,” he says. “This is what they talk about, simply because of the nature of the work that they do, and, in many cases, investment dollars run counter to the mission that they are looking to further.”

From there, the Just Futures team went on to design qualified plans that would both minimize investments in sectors counter to social equity issues and would meet the fiduciary standards and long-term objectives of a qualified plan. The plans screen for companies the firm identifies as being “complicit” in climate change or involved in areas such as prisons, immigration detention, weapons manufacturing, predatory or discriminatory lending or with asset managers or shareholders that voted against resolutions supporting racial justice.

Currently, the firm is working with about 24 nonprofit and mission-driven organizations in the U.S., with Guerrero noting that startup firms are open to initiating their plan with the social values backdrop.

“This is not about hugging trees,” he says. “This is about balancing within the regulatory constructs that we have to provide transparency [in retirement plans] that has not existed.”

Founded in Diversity

Just Futures was founded in 2022 by Alex Saingchin and Steve Choi, both of whom had worked in the nonprofit sector and noticed a lack of workplace investment options that matched their world views. From that basis, the two decided to build a firm that would make “it easy for nonprofit administrators to offer benefits and that could serve as a vehicle for shifting their hard-earned wages away from the extractive economy and toward regenerative investing.”

The firm is led by a group diverse in both color and gender, Guerrero notes, and is incorporated as a public benefit company. The diversity mission is both internal for the company and external in terms of aiding people of diverse backgrounds to invest in companies and firms that support their communities.

“When we think about the opportunities that don’t exist for people of color within the investment industry, for one, and how that experience can feed into investment choices, for two,” Guerrero says.

Guerrero came to the firm with executive experience at major financial services firms, including asset management and insurance. He was first brought in as an adviser, but after he and the founders started working together, was made CEO.

His interest in the firm came, in part, from feeling his work in corporate finance was “a little soulless.” When his family made a geographic change, Guerrero joined a financial technology company catering to nonprofits that support people with special needs to build out their investment portfolio. Seeing the “impact on people’s lives” from his work, he wanted to continue in socially responsible work.

Value Add

Guerrero says Just Futures builds its portfolios using investment value-screening from firms including As You Sow, but the process is not separate from creating top-quality investments that meet fiduciary standards.

“The value screen layer in our investment process represents an integral aspect of our fiduciary practice with respect to management: identifying business practices that have the potential to impair the valuation of public companies,” he says.

Just Futures is partnering with digital 401(k) provider Vestwell on its offering, a decision Guerrero said was made in part due to its ability to offer a tech-forward retirement plan that is user-friendly for both plan sponsors and participants. He noted that nonprofit professionals are often juggling many different responsibilities, so the firm wanted a partner “with more of a turnkey solution” that “eases administrative burden.”

Right now, Just Futures is focused on getting in front of nonprofit plan sponsors, not retirement plan advisers. In the future, however, Guerrero says the firm will reach out to the adviser network as “another leg of the stool that we will add on,” noting that, “frankly, a lot of advisers don’t do this, and they may have clients that come to them asking for it, and we can be the provider for them.”

Going forward, Guerrero says the firm wants people to know Just Futures exists and a value-aligned retirement plan is available and meets regulatory standards.

“We’d love for values-aligned investing to become a thing—we know that it already is among younger investors, and that’s not going to change as they age and move ahead in their careers,” he says. “One of the things that we’re really happy to have heard throughout our initial client uptake: When we meet with potential clients, they say, ‘We’re so glad you exist; we’ve been waiting for something like this.’”

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