The demands on retirement plan sponsors have never been greater: coordinating plan operations, assuring regulatory compliance, delivering positive outcomes for plan participants. To help, MassMutual Investments has launched a practice management program for plan advisers, “PlanChampion,” that can help position them in a new role as chief governance officer for the plans they serve. To find out more about this new concept and how it works, PLANADVISER spoke recently with Mark Cover, Head of Defined Contribution Investment Only Field Sales for MassMutual Investments, and John Carl, founder and President of the Retirement Learning Center, whose ERISA consulting services are available as part of the PlanChampion program.
PLANADVISER: Why is MassMutual Investments proposing that retirement plan advisers start functioning as Chief Governance Officers (CGO)?
Mark Cover: As a provider of investment management services to the retirement plan community, we’ve seen that there’s a gap in plan governance processes that can hinder positive outcomes for plans and plan participants. Specifically, there is often no deep coordination of the many service providers plans use—third-party administrators, custodians, trustees, fiduciaries. We saw an opportunity to leverage our knowledge and expertise to help advisers address these problems and ensure that plans are able to deliver the outcomes they want.
PA: How does the program work?
Cover: It puts the adviser at the center of their client’s plan, making them the quarterback of the plan, if you will. The PlanChampion program offers two important resources to help them fulfill that responsibility. One is the Hero7 tool, which through a series of questions documents whether key governance issues are identified in plan documents and addressed. Hero7 takes all the elements of what a CGO does and helps the adviser manage and create a benchmark report on the entire process. The other important resource in our program is John’s company, the Retirement Learning Center, which can support advisers in evaluating vendors, interpreting plan documents, and spotting any inconsistencies or misalignments between those documents.
PA: Did the COVID-19 pandemic impact the need for this kind of service?
Cover: It did. When the pandemic struck, many employers had to scramble to make sure they remained economically viable. That forced difficult decisions around whether to furlough employees, terminate employees or perhaps terminate the company’s matching contributions to its retirement plan. This shined a light on the many interlocking pieces of a retirement plan and how they must be considered in concert, especially in times of stress. We saw it as a teachable moment—a chance to bring a more holistic governance approach to plans, and a way to identify and address some of the challenges the pandemic had exposed.
PA: What kind of liabilities are plans facing if they don’t beef up their governance capabilities?
John Carl: According to Bloomberg Law, proposed class action lawsuits claiming excessive 401(k) plan fees are on track for a five-fold increase between 2019 and 2020.* But these lawsuits, boiled down to their essence, are about governance. The bottom line is plan sponsors keep getting tagged, the stakes are higher than they ever were, and the scrutiny is only going to get greater. It’s time for organizations to apply the same governance standards they apply at the corporate level to their retirement plan, because their retirement plan is an extension of their organization. And it’s a potential lightning rod for litigation right now.
PA: What are some of the issues that get uncovered when this kind of oversight is implemented?
Cover: There’s a common thread, highlighted by that lack of the synchronization across all the various service providers plan sponsors are using, and it can lead to some surprising missteps. One big finding is that despite all the talk these days about participant outcomes, there’s often no documentation structure or process around delivering them. We also see with many plan sponsors a poor understanding of who is acting as a fiduciary for the plan, including who they are and what kind of fiduciary they are. While some service providers willingly acknowledge fiduciary status, many do not. In those cases, service agreements tend to be written to protect the providers from fiduciary status. But regardless of what the contract says, if a service provider exerts control over a plan, it becomes a “functional” fiduciary—and must be held accountable for that responsibility.
Carl: I’d elaborate on Mark’s earlier comment about plans paying multiple vendors who operate in their own little silos. Those vendors might be doing a fine job in those silos, but that does not ensure a plan is being run well or is effective. When you have an ineffective plan it triggers unsuccessful retirement outcomes, which is what triggers lawsuits. Plans need somebody who has a macro understanding of the industry and can synchronize those multiple vendors and the many documents outlining their responsibilities.
PA: Are there any metrics that show a payoff for implementing good governance?
Cover: The easiest and best way we can think about it is the Hero7 tool we’re making available through our PlanChampion program. It produces a score—the Plan Governance Index score—that shows how a plan is doing and can serve as a benchmark moving forward.
PA: What’s the payoff for plan advisers? Are they going to be able to charge their clients more?
Cover: We can see this going two ways. For some larger plans, we can envision an adviser carving out a specialist role as CGO and identify ways to get paid specifically for that effort. More commonly, we expect to see an evolution of the overall service a retirement adviser is going to provide plan sponsors in which this is just baked into their business model and allows them to differentiate themselves in the marketplace. It really lets them create a new fiduciary model. If the original model grew narrowly out of the old environment in which employers offered annuity-type plans, the fiduciary 2.0 model expanded fiduciary responsibilities to focus on fees and fund selection as plans moved beyond relying on annuities. Now we’re looking at a fiduciary 3.0 model, which includes a broader oversight role that considers not only fees and investments but also good plan administration, governance and outcomes.
PA: What about costs? Are plan advisers who use the PlanChampion program going to pay for it?
Cover: MassMutual Investments is bringing this offering to the industry as part of our practice management program to help plan advisers deliver strong participant outcomes for their plan sponsor clients. For plan advisers who work with us, we’re not charging for its use.
PA: Will advisers assume any additional fiduciary responsibilities or risks by serving as a CGO?
Carl: There are many views on the fiduciary role of plan advisers, but if you looked at what most are doing and asked plan sponsors to describe it, I think most would say plan advisers are performing fiduciary functions in some way, shape, or form—whether they have a formal fiduciary contract in place or not. In the case of a plan adviser serving as CGO, we strongly suggest they create a governance policy document that outlines a framework for how that plan will be evaluated. We can support them in developing that. If the document is well constructed, and they follow it, we don’t see any increased liability.
PA: What’s your best argument for why a plan adviser should position himself or herself as a CGO?
Cover: My quick answer would be it’s just the right thing to do. It comes back to why we’re all in this business, which is to help plan sponsors and participants save for retirement. Now that we’ve identified a governance gap, there is an opportunity to address it and ultimately drive better participant outcomes.
Carl: We can’t ignore the legal climate, either. We’re in a super litigious environment where we’re now expecting a five-fold increase in lawsuits. At the root of that is a deficiency in governance. If plans had a proper governance structure they wouldn’t be quite the punching bag they are right now. To sum up, there’s a need for this on the plan sponsor side due to the litigious environment we’re in, and there’s a need for it on the plan adviser side to demonstrate that they’re doing more than just picking funds and benchmarking a plan. It’s the natural evolution of the practice management part of a plan adviser’s business. It will help plan sponsors reduce the risk of vicious lawsuits, and it will help plan advisers further justify the fees they’re charging for the good work they’re doing..
* “401(k) Fee Suits Flood Courts, Set for Fivefold Jump in 2020,” by Jacklyn Wille, Bloomberg Law, August 31, 2020
Plan advisers is defined as the service financial professionals provide to defined contribution plans as fiduciaries under ERISA 3(21) or 3(38) only, even though the financial professional may offer other services outside of their investment advisory role.
MassMutual Investments is the marketing name for certain investment-related businesses, products, and/ or services of Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliates, including MML Distributors, LLC (MMLD), MML Investment Advisers, LLC (MMLIA), and the MassMutual Funds family of mutual funds. The MassMutual Funds are offered through MMLD as the principal underwriter and distributor. MMLIA provides investment advisory services to the MassMutual Funds. MMLD is a member of FINRA (www.FINRA.org) and SIPC (www.SIPC.org). Both MMLD and MMLIA, 100 Bright Meadow Blvd., Enfield, CT 06082, are subsidiaries of MassMutual.
« Expert Voice: Ed Farrington