Client Service October 15, 2018

Smaller DB Plans Rely More Heavily on Third Parties

There may be more upfront effort with smaller clients, but once they are on board, they take less time, according to Cerulli.

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Smaller defined benefit (DB) plans rely more heavily than large DB plans on third parties, i.e., asset managers, investment consultants, actuarial consultants and third-party administrators (TPAs), according to Cerulli. The smaller plans require more hand-holding for such essentials as filing regulatory paperwork, and they cannot afford some of the more expensive perks, such as frequent updates from the actuary.

“Consultants generally agree that there may be more upfront effort with smaller clients—educating, developing the relationship, building trust—but once they are on board, they take less time,” says James Tamposi, research analyst at Cerulli. Larger clients have access to liability hedging, overlay managers and derivatives to manage interest rate risk. Many small plans want these capabilities but cannot afford the expense.”

Small DB plans also tend to have a larger allocation to passively managed products due to their lower cost than actively managed products. They also are more loyal than large DB plans.

Additionally, small DB plans are more inclined to have an outsourced chief investment officer (OCIO), Tamposi says. “Because there is so much hand-holding with the investment consultant, smaller clients may decide to forego discretion altogether, letting an investment professional take the reins.”

For TPAs, working with small clients tends to be more time-consuming and difficult. “We often hear from TPAs that smaller corporations craft benefits around owners and management teams, making plan design more complex,” says Alexi Maravel, director at Cerulli. “Therefore, there is most consulting done upfront for the smaller plans. Larger plans’ structures tend to be less complex, because they pool a much larger and more homogeneous participant base.”
Products October 12, 2018

AARP Launches Social Security Resource Center

The new website is designed to be a one-stop place for investors and retirees to have their Social Security retirement questions answered, including when to claim.

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AARP has launched a digital Social Security Resource Center, coinciding with this week’s announcement that Social Security benefits will be increased 2.8% for 2019.

AARP Chief Executive Officer Jo Ann Jenkins says the 2.8% cost of living adjustment (COLA) brings much-needed income security to those Social Security beneficiaries and their families who depend on their “earned, modest benefits.”

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“The COLA is particularly important for the tens of millions of families who depend on Social Security for all or most of their retirement income, many of whom may have lost ground during the Great Recession,” Jenkins says. “Unfortunately, the cost of living increase may not adequately cover their expenses that rise faster than inflation including health, prescription drug, utility and housing costs.”

Jenkins points to research showing more than four in 10 beneficiaries started exploring their Social Security options less than a year before making their first claim. She says recent papers from AARP’s Public Policy Institute demonstrate the importance of Social Security to women and minorities, and of ensuring the long-term stability of the successful program.

“This election season AARP has also asked voters to ‘Be the Difference and Vote,’ because critical issues like Social Security, Medicare and prescription drug costs are all on the line,” Jenkins says.

Among many other features, the AARP resource center helps individuals answer the following questions: “What is the maximum Social Security benefit I can receive, and how do I claim it? Can I work and collect Social Security? And how can I get a copy of my Social Security award letter?”

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