Turn Signals
What is on the horizon for 2010?
Reported by Steff C. Chalk
In the quest for excitement in and around the qualified retirement plan landscape, one need only look toward the future. In doing so, there are five topics that I can think of that are well-positioned for change in 2010. Some are more immediate than others and others are more dramatic than immediate; however, each could have a significant impact on your plan sponsor clients, their plan participants, and, of course, you and your practice.
What Is Going on Inside the Plans?
Target-Date Funds (TDFs): TDFs are ripe for change. There is great opportunity to improve the structure, concept, and deliverable of these investment choices. The asset allocation of TDFs is varied in both asset classes utilized and holding percentages. Communication of the meaning of “target date” has been less than clear. (Does “2030” mean that date upon which I will be 65, I will retire, or that I should plan to live for 20 more years?) The absolute and relative performance of TDFs has raised questions in the U.S. House of Representatives and, more recently, the SEC. Wrap that around the fact that there is an inherent conflict of interest in some of the offerings with a fiduciary exemption for the investment manager—and perhaps we should look forward to such change.
Fees: The U.S. House of Representatives repeatedly has vilified the spread between the fees of the approximately $20 billion Thrift Savings Plan and every other 401(k) plan—on a case-by-case basis. Fees make a handsome target for headlines. Consider what occurs in the absence of adequate fees. Advisers have little to no interest in serving the zero-margin client. Without adequate fees, industry innovation comes to a screeching halt! Would private retirement plan participants be better off without communication, enrollers, telephone support banks, and Internet access? All of these services are the product of, yes, fees.
What about the Participant?
Retirement Readiness: Among three major players in retirement plans (plan advisers, plan sponsors, and plan partic¬ipants), two of them fully grasp this concept. The partic¬ipants and retirement plan advisers get it. Plan ¬sponsors seem still to be struggling with the word “fiduciary” and are not yet ready to embrace the concepts or precepts of retirement readiness. Participants received a crash course during the fall of 2008. Advisers are introducing retirement readiness into sales presentations and conversations. Advisers have a lot of work ahead to bring plan sponsors to a comfort level around retirement readiness and ensure proper communication is being given to plan participants.
What is out of Our Control?
The Confluence: The retirement plan adviser’s workday is affected by a number of exogenous variables—not the least of which include banking, brokerage, and regulation. The current conditions for these three bodies to coexist has been less than stable over the last two years and it is becoming an increasingly contentious milieu as of the beginning of 2010. The sooner these parties agree on the rules and playing field, the sooner advisers can concentrate fully on making the system better for the participants. The longer the institutions argue, the less likely we are to know the degree to which the outcome will affect advisers negatively.
Stability in World Markets: In the event of an Asian or European country collapsing under massive debt load, the impact might be felt not only on “Main Street” but also on my street! The question becomes, “Are plan participants alerted to the fact that another economic shock could be around the corner—only this time it initiates off our shores?” It would be best to alert plan sponsors and plan participants that such an overseas meltdown could have shock waves that would have an impact on our financial markets—similar to the forewarning everyone was clamoring for (but never received) in September of 2008. In 2010, this business is anything but boring!
Steff C. Chalk is CEO of the Fiduciary Consulting Group, a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.