Products August 16, 2017

Tax-Exempt Retirement Plan Markets Could Use Help With Differing Needs

Health care plan sponsors deal with much M&A activity, and that is where Voya hopes to grow its business.
Reported by

Heather Lavallee, president of Tax Exempt Markets at Voya Financial in Windsor, Connecticut, has been in financial services for 25 years, most of which was spent in the employee benefits space. She’s been with Voya Financial for nine years, previously working in employee benefits, but now with one year under her belt working in the retirement plan space.

Lavallee spoke with PLANADVISER about the needs facing the tax-exempt markets and what Voya specifically is doing for plan sponsors in the health care industry. She notes that Voya has the ability to service governmental, education and health care retirement plan sponsors.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

“Each of those markets have different things taking place,” she says. For example, Lavallee recently attended the government conference of the National Association of State Retirement Administrators (NASRA) and saw a focus on pension reform, hybrid plans and how to communicate with participants to help them better prepare for retirement. The conference also addressed cybersecurity and leveraging data to help participants make the most of defined benefit (DB) and defined contribution (DC) retirement plan benefits.

“In the education market, we’ve seen heightened request for proposals (RFP) activity, especially with the litigation going on,” she says. “Plan sponsors are focusing on their investment lineups and fee structures.”

Lavallee notes that one good thing about the health care retirement plan market is it has a smaller decision making chain. They don’t have to go through the same committees and entities that education and governmental plans go through; it is more like in the corporate market. So, they are pushing through on using automatic plan features. In addition, there are parallels about how health care entities do business and how they look at their retirement plans. They are heavily focused on the importance of cybersecurity because it is also an important issue for patient data, for example. And they strive to engage patients to drive better outcomes and lower costs for patients. Similarly, she says, they strive to engage employees, increasingly through digital experiences to drive participation and contribution rates upward to improve outcomes.

Voya is looking to grow its business in the health care plan sponsor market, according to Lavallee. “There is so much focus on merger and acquisition [M&A] activity and consolidation in this space,” she says. “Health care plan sponsors have the same needs around participant savings, but we are wondering how we can help entities when each time they do an M&A it’s like implementing a plan all over again.” Voya offers help with communicating with participants, cybersecurity and compliance.

NEXT: Serving the health care retirement plan market and those with special needs

“We have strategic relationship managers for current clients to help them understand their goals when going through an M&A. We have a dedicated relationship manager [RM] and team working with them,” Lavallee says. “We work with plan sponsors and benefits administrators to pull together retirement plans in a unified fashion with reporting, documents and project management.

A second piece of Voya’s service to health care plan sponsors going through an M&A is leveraging communication specialists. “We have dedicated financial advisers working onsite who partner with plan sponsors to do education,” she says. “We are consultative, but also focused on implementation, participant communication and adviser support. Local advisers communicate with participants one-on-one.”

Lavallee adds, “What I think makes our model unique is having a strategic relationship manager that can look at a plan sponsor’s long-term or quarterly goals, an implementation manager focused on more complex issues, and local advisers onsite at health care facilities who develop long-term relationships with employees and can do more long-term financial planning. We are often told this is a differentiator in the health care retirement plan space.”

Finally, Voya notes that over the last 18 months they have focused on a part of the community they feel is underserviced—those with special needs and caregivers. The firm has launched Voya Cares to address this. According to a white paper about Voya Cares, nine out of 10 parents of children with special needs say they receive little or no financial support beyond their incomes. Many in that group also say that caring for a person with special needs gravely impairs their ability to plan and save for retirement.

At Voya Financial, there is an ongoing effort to examine and modify policies and benefits that support caregivers and employees with special needs. Voya Financial also continues to provide access to information, training, and other resources to help employees and their families prepare for their unique retirement situations as well as find educational resources. In addition, during 2017, Voya plans to offer its informational and caregiver retirement-planning services publicly via a series of pilot programs. 

Voya also supports the Achieving a Better Life Experience (ABLE) Act, which allows the person with disabilities or a legal representative to establish tax-advantaged savings accounts of up to $100,000 without affecting Social Security Supplemental Income (SSI). If SSI is not an issue, limits are generally expanded to between $250,000 and $350,000.

Products August 16, 2017

Morningstar Dives Deep Into Plan vs. IRA Cost Benchmarking

PLANADVISER learns from Morningstar's research team about a new benchmarking service comparing 20,000 DC retirement plans to establish better comparisons of qualified plan costs versus IRAs.
Reported by

Paul Ellenbogen, head of global regulatory solutions at Morningstar, says the latest cost benchmarking solution from his firm will supply plan advisers and their clients with “valuable baseline information when comparing a qualified plan with a possible individual retirement account (IRA) rollover.”

The firm argues this type of analysis is critical because 404(a)5 disclosures “remain tightly guarded by plan recordkeepers and are difficult to access for plan participants and their would-be financial advisers.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“The need to deliver best-interest advice is top-of-mind for advisers and financial institutions, specifically when helping investors determine whether to remain in a qualified plan or perform a rollover distribution into an IRA,” Ellenbogen explains. “Guidance from the Department of Labor states that in the absence of actual plan data that was reasonably attempted to be obtained, the financial institution and adviser can rely on alternative data sources, such as the most recent Form 5500 or reliable benchmarks on typical fees and expenses for the type and size of plan at issue. FINRA and the SEC have also issued guidance when assisting with rollover distributions to an IRA.”

To assist with the process, Morningstar initially built a solution that “surfaces available Form 5500 data.” But the firm is now extending that solution by creating “Qualified Retirement Plan Benchmarks,” which have been designed to “help advisers determine baseline cost estimates, with approximate total fees based on plan asset size.”

“Using data from some 20,000 defined contribution retirement plans, we find that total plan costs, within a given asset size range, vary from 37 basis points for the largest plans to 142 basis points for the smallest ones,” the firm reports. “We plan to refresh our Qualified Retirement Plan Benchmarks every quarter and make them available to clients.”

Ellenbogen says the need to create these new benchmarks is pressing and very clear: “In addition to the cost of investment management, participants in defined contribution (DC) plans, such as 401(k) or 403(b) plans, pay a variety of plan maintenance expenses. While these costs tend to decrease for larger plans, there are significant differences in expenses across plans and providers. These expenses tend to be relatively opaque, and many participants have no idea about the true cost of participating in a DC plan.”

Adding fuel to the fire, information about DC plan fees is becoming increasingly important to investors and advisers seeking to comply with the U.S. Department of Labor’s recently expanded conflict of interest rule. Under the rulemaking, as of June 9, rollovers from qualified plans to IRAs are now governed by the DOL’s best interest standard, which requires an evaluation of “in-plan” portfolios relative to “out-of-plan” portfolios in IRAs. The rulemaking further requires application of impartial conduct standards in providing fiduciary advice.

“To provide an effective recommendation, the adviser must have some estimate of plan expenses,” Morningstar’ argues.

NEXT: More from the Morningstar analysis 

As laid out by the Morningstar analysis, the total costs paid by participants in a DC plan can be broken down into two primary components—investment expenses and additional expenses.

“Investment expenses are the costs associated with investments available to participants in the plan,” Morningstar clarifies. “Many investments also contain some amount of monies that are used to cover plan expenses and are commonly called ‘revenue sharing.’ If the revenue sharing dollars available are not enough to cover the recordkeeping fees, administrative fees, trustee fees, etc., these additional expenses need to be paid by either the plan sponsor or billed to the individual participants.”

The research team finds that, for most plans, the investment management expenses are “significantly greater than additional billed expenses,” and are generally between 85% and 90% of the total cost of the plan.

“There has been an increasing movement among plan sponsors in recent years away from using investments that provide revenue share (e.g., to R6 share classes) and therefore we expect the relative portion of expenses billed to participants to increase,” the firm points out. “It is worth noting that just because the costs billed to participants increase does not mean the total plan costs increase. In theory, higher billed costs should be offset by lower revenue share expenses therefore lower investment management fees. In practice, cost structures vary significantly across plans and providers.”

The analysis shows total plan costs vary materially by plan, but tend to decrease as plan size increases.

“There are some very inexpensive small plans, however,” Morninstar says. “For example, there are some plans with assets of approximately $1 million that have total expenses of approximately 0.25% of plan assets (which would be $2,500 a year). The low overall cost can be attributed largely to the plan sponsor selecting low-cost investments (e.g., index funds) and likely paying directly for all administrative, recordkeeping, and trustee expenses. In contrast, there are some plans with $1 billion in assets with fees approaching 100 basis points. These plans likely rely on significantly higher cost investment options (e.g., actively managed investments), or more expensive share classes.”

«