Next Generation Plan Design
The Pension Protection Act (PPA) provided big drivers to
improving defined contribution (DC) plan participant outcomes, said Brian
Catanella, institutional consultant and senior retirement plan consultant with
UBS Institutional Consulting Group.
Automatic enrollment and automatic deferral escalation
increased participation and savings rates, and qualified default investment
alternative (QDIA) rules shifted employees to more age- and risk-appropriate
But, plan sponsors are eager for advisers who can look at
their plans and help them make these plans more efficient and effective, he
said. They want specialists. “They have a fear of litigation, and they want
help managing their fiduciary responsibilities,” Catanella said. “In addition,
they want to keep costs down, and need education about how they are paying plan
fees.” He added that revenue-sharing is not always a bad thing if it provides
enough to pay a large part of plan fees.
As far as plan design, convincing plan sponsors to implement
auto-escalation is a delicate conversation, according to Catanella. But he
says, using data, advisers can make a good case to plan sponsors. “Provide
projections of the improvement in participants’ savings and retirement
readiness,” he suggested. “Also, point out the costs of employees not being
able to retire.”
For plan sponsors concerned about the costs of
auto-escalation, one thing to consider is stretching the match. Participants
save more and the employer match costs remain the same.
Catanella also said encouraging plan sponsors to do a
re-enrollment of all eligible employees is important. Advisers can point out
that it could increase participation of non-highly compensated participants,
and may help with nondiscrimination testing.
He said getting plan sponsors to measure retirement
readiness of employees and providing a savings gap analysis to employees can
also drive plan design decisions.
According to Catanella, advisers should encourage plan
sponsors to offer overall financial wellness solutions to employees. “It is
especially good to help low earners,” he said. “There are lots of vendors that
can help with this.”
Finally, Catanella suggested introducing plan sponsors to
certain technology, such as smartphone applications that can aggregate
participants’ entire financial holdings. These will be especially effective
with younger employees, he said.