TSA Consulting Group, Inc., a provider of 403(b) and 457(b) retirement plan administration services, has acquired Security Financial Resources, Inc.’s 403(b) Plan Solutions Program.
Under the terms of an all-cash purchase agreement, TSA
Consulting Group acquired the 403(b) Plan Solutions Program effective April 10.
The deal adds more than 2,000 public school districts and colleges in 47
states to TSA’s comprehensive Compliance Edge program.
TSA Consulting Group provides retirement plan administration
services to public education employers, with deliverables such as plan
documents, employer and participant services and recordkeeping, as well as
tailored employee communications components and web-based transaction and
remittance processing. “Our continued commitment to this market is evidenced by
the number of long-term clients that continue to place their trust in our
services,” says Joe Rollins, president and CEO of TSA Consulting Group, based
in Fort Walton Beach, Florida.
The
company’s clients include large school districts in the United States and
represent over one million employees. “We are excited about this opportunity
and confident in our systems and capacity to deliver truly independent plan
administration services to a greater number of public education employees,”
says Steve Banks, TSA Consulting’s chief operations officer.
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Reish, partner and chair of the Financial Services Employee
Retirement Income Security Act (ERISA) team at the law firm of Drinker, Biddle
& Reath LLP, noted the focus in the industry has traditionally been savings
accumulation, but now the industry is asking, will workers have enough, and how
will they withdraw their money so as not to exhaust accounts before they die?
“I think the decumulation period will be more difficult [than the accumulation
period],” Reish told attendees of the Retirement & Benefits Management
Seminar, hosted by the University of South Carolina Darla Moore School of
Business, and co-sponsored by PLANSPONSOR.
During the decumulation phase, participants will no longer
have centralized education and support from their employer-sponsored retirement
plan, and the move to retail support means more possible conflicts of interest
and higher fees, Reish said. He contended that is what the anticipated
regulations redefining the definition of fiduciary are really all
about—individual retirement accounts (IRAs). “There’s lots of money involved
expected to be rolled over from defined contribution plans,” he said, adding
that he expects more regulations about IRAs in the coming years, providing
protections such as individuals get in employer-sponsored plans.
One thing the Department of Labor is working to address the
benefit adequacy issue and concerns about the decumulation phase for retirement
plan participants is lifetime income projections on participant statements (see “Income
Projections: Showing Participants A Better Way”). Reish says he believes
there will be final regulations about this within two years and it will mandate
plan sponsors or providers put projections on statements. “This is the rule
that will have the biggest impact on participants, even though the fiduciary
rule and fee disclosures have gotten more press,” he noted.
Reish asked attendees to think about employees getting this
projection on their statements every quarter for 10 years, not just as a
one-time thing they can ignore. “It will be like drip torture; after years of
seeing it, it will make a difference,” he contended. He told attendees they do
not have to wait for the government mandate to offer this to participants, as
many recordkeepers have the capability now, and some are already doing it.
Reish
said the impact on benefit adequacy comes from projecting the results of
current behavior, providing a reasonable benchmark for comparing to typical
needs, and providing guidance for helping to close the gap. The projection of
the results of current behavior is all that will be required on statements; the
other two may be offered by providers or are an opportunity for advisers to do
participant education or offer to their retail business, he added.
Two risks to benefit adequacy are longevity of participants
and withdrawal rates. Reish noted half of today’s 65-year-old men are expected
to live to age 85, and half of today’s 65-year-old women are expected to live
to age 88. He showed an example from the Congressional Research Service of how
a 4% withdrawal rate could give some participants a 94% chance their money will
last for 30 years, but moving the withdrawal rate up to 5% drops the chance to
77%, and moving it to 6% drops the chance to 48.5%.
Reish conceded that it is not a plan sponsor’s job to
educate participants about this, “but, if not plan sponsors, who will?” he
queried. “It’s inefficient to leave folks on their own.”
Reish pointed out that, for decades, 403(b) plan sponsors
have successfully been using in-plan annuities, which could be a model for
other defined contribution (DC) plans (see “What 401(k)s Can
Learn from 403(b)s”). There are a number of available products plan
sponsors may use to address the risks to benefit adequacy: traditional
annuities, guaranteed minimum withdrawal benefits (GMWBs), longevity insurance,
managed payout and retirement income mutual funds, and managed retirement
income accounts.
Why should plan sponsors offer such products? Because of the
success rate for participants, Reish said. He noted that more participants use
in-plan products than rollover into or purchase such products during the 60-day
window for rollovers at plan termination. In addition, in-plan products are
institutionally priced and cost much less for participants than retail
products.
There is another benefit for having a pre-arranged
distribution methodology for participants, according to Reish; it helps address
the risk of diminished cognitive abilities on the decumulation phase. “There’s
something to be said for getting your financial future in order before your
cognitive abilities diminish,” he said. “It will be helpful to participants’
families too.”
One topic Reish wanted to make a point about that is brought
up with the issue of benefit adequacy is the focus on plan and investment fees.
“The mantra now is that plan sponsors need to make plans as cheap as possible,”
he said, “but, the best plans I’ve seen are high-cost.” This is because of
better services, he noted.
According
to Reish, the single most expensive thing plan sponsors can do is also of most
value to participants—one-on-one advice. Reish admitted he was an advocate
early on about fiduciaries watching plan costs, but now he feels the industry
is in a death spiral. “Focus on providing the best services for participants,”
he told seminar attendees.