Data & Research March 10, 2010

Americans Focused on Rebuilding Finances

Americans are no longer dwelling on concerns about the economy and instead are focused on rebuilding their finances for the future, according to the latest Principal Financial Well-Being Index.
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The research found that 62% of workers and 54% of retirees said they are spending less money since the economic downturn began in 2008. Respondents also reported paying down debt (45% of workers; 29% of retirees); increasing savings for an emergency fund (22% of workers; 14% of retirees); and increasing retirement savings (18% of workers).

Further proof of their focus on rebuilding their finances is seen in what Americans plan to do with extra cash expected. According to the Principal Financial Well-Being Index, 77% of workers and 42% of retirees expect to receive a tax refund this year, and workers’ plans for their tax refund include paying down or paying off short-term debts (44%) or saving or investing the refund (41%), while half of retirees plan to save or invest their refund (up from one-third last year), and 23% plan to pay down or pay off short-term debts.

One out five workers also reported they received a corporate bonus for 2009, and the bonus was most often saved or invested (38%)—an increase from this same period in 2008 (29%).

The latest index also found:

  • Two-thirds of workers are very concerned about their long-term financial future—slightly less than in fourth quarter of 2009 (71%)—and 64% of retirees are very concerned about their long-term financial future—up significantly from fourth quarter 2009 (56%).
  • More than half of respondents (55% of workers and 54% of retirees) think health-care reform will have a direct impact on their personal health insurance costs. Of those who think they will be affected, the vast majority of both retirees (86%) and workers (82%) believe their costs will go up.
  • Forty-eight percent of retirees and 34% of workers said a third-party professional (certified financial planner, bank or financial institution, accountant, benefit provider or financial services company, stock broker, insurance agent or attorney) would be the person they would go to first for financial advice, and three out of four workers said they would definitely or possibly use a financial planning service if their employer offered it.
  • Three-fourths of workers rated the emotional impact of becoming disabled and not being able to work for a living as at least an eight on a 10 point scale in which a 10 means “devastated;” however, 49% of workers don’t own or plan to buy disability insurance in the next year and say instead they plan to rely on their family, disability insurance from their employer, or savings in the event of a disability.


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In Practice March 9, 2010

Providers Vie for TPA Attention

Particularly in the small-plan market, retirement plan providers are seeing more business come through third-party administrators (TPAs)—and, as a result, are ramping up their efforts to attract TPAs.
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A handful of providers have announced new initiatives, including financial incentives and new technology, to attract TPAs. For instance, The Guardian Insurance & Annuity Company, Inc. (GIAC) upgraded its awards program and offers a new marketing allowance for TPAs (see “Guardian Kicks of TPA Awards Effort”). ING added new support tools for TPAs, such as improved pricing for plans under $1 million and incentives for new plans (see “ING Enhances Support for TPA Partners”). The Principal announced a “transition expense allowance” to help offset TPA fees during their first year with The Principal (see “The Principal Announces TPA Expense Allowance Program”).

Providers are also beefing up their technology. ING upgraded its TPA Web site with automated reporting capabilities, streamlined loan and distribution processing, and a reporting tool that allows TPAs to run customized reports on any plan in their books. The Principal announced enhancements to its TPA Edge program, including online TPA reporting capabilities and automated services. Transamerica is launching Webinars that focus on specific topic areas to help TPAs build out their market strategies.

Why all the new enhancements? Providers say they are doing more and more business through TPAs, particularly in the smaller end of the market, where TPAs have always been crucial. To expand their business with TPAs, providers are seeking to pass on more efficiencies and financial incentives to reduce the TPA’s expenses.

“This is just a natural series of enhancements that we need to do to keep up with the rate of business that we’ve doing,” said Jeff Schreiber, vice president of business development in the TPA market at The Principal. He noted an increasing percentage of The Principal’s business is moving toward an unbundled service model. “If you look at the market trends—and the market trends are based on the needs of plan sponsors and advisers—there’s no doubt that working with third-party administrators is becoming a preference, and an increasing preference.”

In the $5 million and under market, Principal does about 45% of its proposal activity through TPAs, and “that percentage goes up every year,” Schreiber said. “We see that as a trend that will just continue.” While the smaller end of the market is defined by TPAs, Schreiber doesn’t necessarily see the trend stopping at small plans, as the TPA provides a localized feel that is becoming an increasing consumer preference. “If the plan sponsor likes that local feel…there is no reason to stop at any industry-defined ceilings.” TPAs and providers can offer the “best of both worlds” by providing the technology participants want paired with the plan design expertise and “local hand-holding” of a TPA, he said.

Similarly, Transamerica does 40% to 50% of its business in the less than $5 million market through TPAs, said Deb Rubin, vice president and head of TPA Channel Development at Transamerica Retirement Services. “Our TPA sales have more than doubled in the last two years and we are very hopeful that that trend will continue,” she said. While Transamerica hasn’t announced any specific financial incentives, Rubin said the firm is focusing on value-added programming to expand their reach in the TPA community. Furthermore, like other providers, Transamerica is making strategic hires of people with backgrounds in the TPA market. “Supporting the TPA community is a very important part of our sales book, and our sales strategy,” she said.

Dennis Mosticchio, senior vice president of Group Retirement Solutions at Guardian Life Insurance Company said the firm’s recent enhancements are the first of a number of initiatives in order to improve relationships with TPAs. He said they are evaluating all aspects of their current TPA program as part of the company’s overall initiative to focus on the small-business market. Dale Magner, vice president, Retirement Sales, said that in the last two years they’ve built their wholesaling networking around the country using a TPA-centric model for distribution. “Obviously our goal is to sell more business and as a result we want to have deeper and better relationships with TPAs, so we become their referral of choice to their financial advisers.”

Ginger Brennan, head of National Intermediary Business Development at ING, said ING has focused on TPA relationships for a while, and plans to deepen and grow those relationships in 2010. “We’ve had long-standing, deep relationships with TPAs for decades,” she said “It’s not a new thing for us…Honestly, some of the other vendors are coming to the forefront and saying ‘now we’re going to start courting TPAs.’”

The ease of technology will tend to drive which provider the TPA uses, Brennan said. “TPAs will tend to do business with the vendors that pay attention to them.”

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