Top Advisers Talk Plan Design

The very title “adviser” may make it seem like the best way to approach plan sponsor clients about how to organize their workplace retirement plan is with answers. 

But Dee Spivey, a retirement plan consultant with SageView Advisory Group, says when having a conversation with a client on plan design it’s better to start with a question: “What is your goal?”  

Spivey, who is based in Richmond, Virginia, tries to determine the plan sponsor’s objectives specific to the retirement plan, whether the goal is simply to provide a benefit and check a box, or to fundamentally help participants find financial success in their futures. To get there, it generally takes more questions before getting into the answers. 

“You’re also going to need to know about the kind of structure of their organization,” she says. “What type of employees are they going to have? What’s their turnover? Is the goal to recruit more individuals? What type of costs [are they comfortable with]—meaning are they looking to make a match or to make a contribution?”  

She says that knowing the demographics of the organization should be a priority, along with understanding the compensation levels and age range. She adds that learning about the plan sponsors themselves is important.  

“We place a huge focus on understanding the plan sponsor’s ability to administer the plan,” she says. “What kind of teams do they have internally? What kind of support will they need?” 

Design Concepts for Plan Maximization 

Andy Bush, a partner and financial adviser with Horizon Financial Group, along with Bill Bush, a financial adviser at the firm, think about the usual design concepts to maximize for the plan sponsor.  

Andy Bush says a safe harbor match is the first basic plan item that comes to mind. This feature tends to have the greatest impact on a plan as it incentivizes employees to put their own dollars down. Additionally, it helps with some of the plan testing in which more highly compensated individuals can max out their contributions without the worry of getting a return because of failed testing.  

“Some of our plans have done a safe harbor match, and then they’ve done a discretionary match on top of that, which has yielded probably the absolute best return,” Andy Bush says. “It allows a lot of money to flow into the plan. It increases participation tremendously.” 

For example, if a person puts in 4%, they get 8% from the company with a safe harbor match and a discretionary match, which is almost a “foolproof” return, according to Andy Bush.  

Bill Bush adds that the auto-enrollment feature has significantly increased participation for most plans, which will have to be implemented for any new plan by 2025 unless an exception applies.  

Andy Bush says, however a plan is working, his team will discuss and make plan design adjustments as needed during every annual review. The team makes sure that the plan is functioning, while adding any features the client is looking to enhance it with. He noted that it’s not a one-time conversation, but a continual one to ensure they are putting a plan together that works best for participants. 

“Those conversations can lead into other paths like non-qualified plans and other options to help boost [participant’s] overall benefit,” says Bill Bush.  

Andy Bush’s main piece of advice for successful plan design is to have a strong relationship with third-party administrators. 

“A lot of times, they’re the ones that can help identify the impact of a plan design that will bring clarity to the business owner, better than just a conversation,” he says. “I believe those relationships are vital.”  

Education Is Key 

Todd Nuttall and Dave Gardner, partners at Caliber Wealth Management, say the biggest mistakes they see in plan design is that plan sponsors may not be focused on the education aspect of the plan for participants.  

According to Gardner, this could be due to taxes and misalignment at an ownership level. Tax benefits are allowed to be passed through to the owner from both participating in the 401(k) and from some of the expenses that come from running the 401(k). If employers are focused on these elements only, they may miss the fact that participants need strong education over time for the plan to really work well and be useful.  

“Another thing that creates a little bit of misalignment is that maybe the plan sponsor is trying to recruit a certain group of employees and they know that a 401(k) is required in order to go out and recruit those employees,” says Gardner. “Recruitment is one great tool of the 401(k) but it does lead to a little bit of misalignment if we come up with a longer-term view and perspective of what the 401(k) plan is. It’s a real benefit, and there’s some complexity to it that we need to be educating our participants on.” 

Another reason plan sponsors aren’t placing a premium on education is because they assume they are already educated on 401(k)s, says Nuttall.   

“The second part of that is I think there’s a little bit of a hesitation due to, ‘If we hold these brown bag lunches every month to bring in the adviser to educate, does that take away time from them being productive employees and interrupt the flow of things?’” he notes. 

Nuttall says that, in fact, the opposite effect is true. Providing education to employees allows participants to get the education that they need so that they can have peace of mind and not be stressed out as much at work about finances and retirement. This in turn makes them better employees because they’re not worried as much about their personal finances or their retirement plans. 

“What we’re finding is that if we reengage our plan sponsors and educate them, then that education is matriculating down into the employees at a better level,” says Gardner. “We step in and reeducate those plan sponsors on what’s out there. We do it in a way that’s not overwhelming to them but can be an ‘ala carte option’ to select the plan features and provisions that are going to work for their goals.”