Data & Research July 19, 2013

PSNC 2013: Time for a Change

How do plan sponsors know when it is time for a change in plan providers?
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Speaking during a panel at the PLANSPONSOR National Conference, Anthony D. Agbay, senior vice president of Investments at The Agbay Group, said it is good practice to benchmark plans every three years in addition to benchmarking providers by issuing a request for information (RFI) or request for proposals (RFP). “It will either validate your decision to keep a provider, or show a reason to change,” he told attendees. According to Agbay, plan sponsors need to know what else is out there, and whether another provider can meet their plans’ needs better. “Is another provider a better match for business and participant type or plan size?” he queried.

Michael W. Kozemchak, managing director at Institutional Investment Consulting and moderator of the panel, said the panel identified poor data, inaccurate processing of transactions, inaccurate information from the call center, testing issues, late Form 5500 filings, not getting a real person, antiquated systems and time of response, and people problems as common complaints leading plan sponsors to change providers. Shelley Weiner, VP, regional director of Institutional Markets at Transamerica Retirement Solutions, added plan document issues to the list; the provider’s plan document may not fit the plan’s processing needs. From the investment side, Agbay said, often plan sponsors are concerned with inflexibility in proprietary funds and inability to offer custom target-date funds (TDFs).

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According to Weiner, plan pricing is a mostly fixable problem; providers want to keep the business, so plan sponsors have some leverage to negotiate. In addition, relationship issues are fixable; she suggested plan sponsors ask if they can meet other team members at the provider and find a better fit. Agbay added that issues such as consistent call center problems are usually not fixable.

Before making a move to change providers, though, Stephen Popper, managing director at Sage View Advisory Group, suggested plan sponsors look at themselves to see if they can do better. "Is data integrity your fault; is payroll done well?" he queried. One of the things plan sponsors struggle with is who owns what, and whether they or their payroll teams are responsible for the failure, Popper said. He reminded plan sponsors that they own their plan and should feel comfortable making decisions about whether a service provider is meeting their needs. "There needs to be a justification for all role players supporting a retirement plan; what is their value add?"

If a plan sponsor decides to stay with a current provider, a targeted renegotiation is in order, according to Popper. He warned that the relationship manager is not the best person with whom to negotiate pricing. Plan sponsors should leverage the provider's sales approach. Kozemchak said: "If you ask for a new sales person to renegotiate, and they don't give you one, take it as a no bid and tell them you plan to move on. Of course, the provider will come back and say they will do it."

If a plan sponsor decides to change providers, it can expect the conversion to take 12 weeks, according to Weiner. "Two things that can tie up a conversion are not having the fund lineup finalized early on, and the person who is authorized to sign documents not being around," she said. "Have a couple or three people who are authorized to sign off on things," she recommended.

Products July 19, 2013

ESPPs Another Way to Help Workers Save for Retirement

Employee stock purchase plans (ESPPs) can complement workplace savings plans and provide a way for employees to diversify their retirement investment efforts.
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According to recent research from Fidelity, improving economic conditions and a strengthening job market are prompting many U.S. companies to enhance their employee stock purchase plans in an effort to improve their benefits packages (see “Employers Enhancing Stock Purchase Plans”). However, ESPP participation rates lag behind other employee benefits.

When employees do participate, a 2012 Fidelity Investments survey found the majority (57%) of ESPP assets are earmarked by employees for eventual retirement savings or alternate investments (see “Stock Plan Participants Earmarking Assets for Retirement”).

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Fidelity outlined key benefits of ESPPs:

  • Most ESPPs offer employees the chance to purchase company stock at a discount—usually between 5% and 15%. This means an employee is likely to make money on the shares they purchase. Plus, if the stock price drops, employees can still take advantage of dollar-cost averaging. And according to a 2012 Fidelity survey, many companies are planning to increase their discount over the next few years, meaning that the savings will be that much greater.
  • Employees can contribute automatically through payroll deductions, just like with their 401(k). Once an employee enrolls in an ESPP and sets their contribution rate, funds are automatically withdrawn from their paycheck and applied to the purchase of company stock. Employees can generally enroll online, and can monitor and manage their account through their plan service provider’s website. And many companies allow employees to contribute as little as 1% of their paycheck, which makes ESPPs that much more affordable for a greater number of workers.
  • Savings within a company stock plan are more accessible than savings within a 401(k). Although taxes may still apply, workers can access the assets within an ESPP without the penalties and/or repayment requirements incurred when they take a loan or withdrawal from their 401(k) account. And savings from an employee stock purchase plan can be applied to a variety of financial needs, such as a down payment for a home, a home improvement project, tuition payments or other life expenses.

An increasing number of workers have access to company stock. This is due to the growth of ESPPs as well as the increasing number of companies being publicly traded, Fidelity says. According to a recent study, 40% of companies that recently went through an initial public offering implemented an ESPP, and all of those companies offered their company’s stock at a 15% discount.

Fidelity provides stock plan administration to 250 employers nationwide, representing $125 billion in grant value.

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