Investment solutions provider Manning & Napier launched a new website and retirement plan “prioritizer” to help advisers steer plan sponsor clients towards long-term benefits success.
The Take
Control website helps advisers reduce their clients’ plan failure risk—or
the chance of a company’s
benefits strategy failing to result in either plan sponsors or plan participants achieving desired outcomes.
The website is built around an interactive benefits prioritizer tool, which
helps sponsors set short and long-term objectives and provides helpful
benchmarks on plan costs and performance.
A short video on the website explains the key components of avoiding
plan failure risk. The website
also offers guidance on how to assess an organization’s ability to pay for
retirement benefits. Featured infographics
include an explanatory timeline of the evolution of employee benefits practices, and how health care and retirement
benefits have converged.
Manning & Napier hopes the website will help advisers
and sponsors become more proactive about plan decisions, instead of responding
to external events or cost-assessment
data alone. The tool can be used to develop a coordinated strategy that incorporates both retirement
and health care objectives, the firm says, in order to drive positive outcomes
and avoid plan failure risk.
“Between
increased health care spending and declining retirement savings, many benefits
plans are subject to plan failure risk, which
today
threatens the long-term security of both a business and its employees,” explains Shelby George, practice leader for benefits solutions
at Manning & Napier. “Employee
benefits have evolved and it is our responsibility as active investment
managers to ensure that
advisers and their
plan sponsors have the tools to mitigate these risks. Our new microsite will help plan sponsors take control and move to
a strategic, value-based approach, with
effective
coordination between health and retirement planning.”
It’s
well known that federal auditors look for red flags to target review efforts, but
one service provider says retirement plan advisers should use them for better business
planning.
It may seem counterintuitive, but red flags can actually
be an attractive prospecting feature, Eric Ryles, managing director of Judy
Diamond Associates, tells PLANADVISER. His firm recently examined about 550,000
401(k) plans and found striking similarities in the issues keeping advisers’
clients up at night.
For example, nearly a third of the plans show employer
contributions that rank in the bottom 10%, based on the value of the employer
contribution.
An adviser whose value-add is to drive down administration
costs can use this data, Ryles says. “He can offer a cost-effective strategy
for boosting the employer match and really increasing the attractiveness of the
plan. That’s more effective than targeting happy, healthy plans.
“It goes without saying that you need to be ready to deliver
what is promised,” Ryles adds.
The five most common tripwires are if the plan:
Falls in the bottom 10% for value of employer
contributions (184,442 plans);
Shows high average account balances (109,287
plans);
Was recently terminated but still has large
numbers of participants (68,222 plans);
Recently reduced employer contributions (63,694 plans);
and
Plans that trigger these red flags typically make better
sales prospects than those with a clean bill of health, Ryles says, adding that
the firm’s Retirement
Plan Prospector tool is one way for advisers to access Form 5500 data and
start picking out these or other red flags. Benefits staff supervising troubled
plans are more likely to seek change, he explains. It makes sense for advisers to focus
on the segment and bring highly targeted solutions to address specific
problems.
Plans with high average account balances can be an
opportunity, Ryles says.
“You can come in and say, ‘I know you’re getting beat up on
asset-based fees because of the high average account balances—let me talk to the
participants about the pros and cons of rolling their assets into an IRA when
they retire, and the other options they may have for exiting the plan,” Ryles
says. “This is just an example. You want to demonstrate that you’re aware of
the plan’s problems, and that you’re bringing the solution.”
The Judy Diamond report identified 17 unique triggers that
can represent useful sales tips, Ryles says.
“There are some that are really interesting, but they’re not
hugely prevalent,” he explains. “If the plan experienced a loss in the previous
year due to fraud and dishonesty, for example, that’s a critical red flag. It’s
a relatively small number of plans, but if you want to find a new plan client,
find an HR director who lost money last year due to fraud.”
Data prospecting tools come into play here, Ryles says. Probably
hundreds—not thousands—of the 550,000 plans suffer losses from fraud and
dishonesty, so they will be hard to find. “That’s the value of this kind of
tool,” he says.
Ryles
says growth-oriented advisory firms should constantly seek ways to winnow potential
prospects “to the maybe 10% that are seriously thinking about switching this
year.If a plan has a score of 85 out
of the 100 rating system we use, they’re not going to be ready to switch. But
we can help you find the plans that score 50 or 40. Those should be the target.”
Large amounts of corrective distributions are another
obvious red flag, Ryles says. A common reason for corrective distributions is that
rank-and-file employees are not contributing enough, which causes problems with
nondiscrimination testing.
“If the owner of a 10-person firm wants to max out his 401(k)
this year, and if five or six of the employees aren’t participating in the plan,
he probably won’t be able to do that and still pass the nondiscrimination requirements,” Ryles
explains. In these cases, excess contributions are returned as a corrective distribution, often causing the business owner to become irritated with their plan's design and performance.
“When this situation occurs, advisers can say to the HR
director, ‘I see you’ve got a bunch of highly compensated executives that are angry.
Their plan isn’t working like they want it too,’” Ryles says. “Let me show you
my solution.”
Low participation is an added problem, he says. “Your pitch
becomes, ‘I’m the 401(k) education guru, let me come in and give my seminar and your participation rate will go up, and next year, you’re CFO
and the President can contribute the maximum amount no problem.”
Advisers may feel reluctant to adopt clients first identified
through red flags, Ryles says, but satisfied clients are rarely going to switch
providers. So it’s a matter of finding the right opportunities—where the
adviser's skillset can make a difference.
“We
look at these red flags more as a benchmark,” Ryles explains. “They tell us
where a plan sits in the universe and how the adviser can contribute.”