PANC 2016: Next Generation Plan Design

The Pension Protection Act (PPA) provided big drivers to improving defined contribution (DC) plan participant outcomes, Brian A. Catanella, institutional consultant and senior retirement plan consultant with UBS Institutional Consulting Group, told attendees at the 2016 PLANADVISER National Conference in Orlando.

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 investments.

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, especially to get younger employees more engaged. Providers have been innovative with smartphone applications. “It would be good to find an app that shows all of a participant’s financial components at once,” he said.