In Practice October 29, 2006

Getting Better

Is your continuous improvement stalled at the expense of the plan participant?
Reported by

“If you are not getting better, you are getting left behind.” That applies in many aspects of business, but nowhere perhaps as critically as for retirement plan advisers. So, what motivates you to improve your practice on a day-to-day basis? In my encounters with advisers, the answers tend to encompass the following:

A. What?
B. Nothing
C. The industry
D. My clients
E. My own high standards (the desire to deliver a superior product)

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

A and B, of course, are abysmal responses that cause businesses to stall and eventually shrink. Response C is infinitesimally better, but it still stifles growth. Only responses D and E will position your firm for solid growth and success, particularly when those motives are integrated with a “continuous improvement” effort.

Serving as the adviser of a retirement plan carries with it a profound responsibility. Over the life of a plan, the retirement plan adviser is, by far, the single biggest noncash contributor to a plan participant’s account balance at retirement. Many retirement plan committees, plan sponsors, plan providers, fund managers, managers of open-architecture recordkeeping systems, and even communications specialists believe that what their group or firm delivers to the plan is paramount to everything else. I respectfully disagree.

I disagree because I have seen too many successful “broker-of-record” changes (where participation increases by more than 50% after the change) to believe that anyone is more important in helping plan participants attain financial security than the retirement plan adviser. I have seen too many fund lineups substantially improved when a new retirement plan adviser begins attending the retirement plan committee meetings. The retirement plan adviser is in a position to make a substantial difference and, because I know that the retirement plan adviser can make that difference, I again pose the question: “What drives your efforts to ‘get better’ on an ongoing basis?”

Start by approaching your best clients and asking them for feedback on what you can do better to help them, the retirement plan committee, and the plan participants. This approach has many benefits; your clients learn that you value their input, and they learn that you are open to change. Most importantly, the feedback helps you to improve, while you also solidify your relationships with your best clients.

Make an appointment specifically to discuss how you can improve your service-you may be surprised at the response you get. By making the commitment to focus on finding out how you can do a better job for your clients, you quickly will differentiate yourself from the rhetorical comment that many of us have used to close a telephone conversation, such as, “Is there anything else that I can do for you?”

Your request will let your clients know that their feedback will be incorporated in your overall “continuous improvement” effort. Advising them of the topic in advance should motivate them to share honest and meaningful content with you, and it should give them a chance to prepare thoughtful responses.

The successful retirement plan adviser knows that the only acceptable response to “How are you getting better?” requires that you take an active role in continually making your business more efficient, and then delivering those efficiencies to your clients. You owe it to plan participants and plan sponsors to force yourself, and this industry, to get better at delivering real outcome-based solutions.


Steff C Chalk is founder and president of CHALK 401(k) Advisory Board, with a client list that includes corporations, nonprofits, and governmental units. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.

Compliance October 29, 2006

Map Quest

Mapping funds remains one of the central issues in maintaining 404(c) compliance
Reported by

Retirement plan advisers wear multiple hats when it comes to assisting their clients; one hat involves conducting provider searches to find the “right” plan vendors.

If that shows the need to change vendors, typically, this change also involves some alteration in the current plan investment menu. A common approach is to match or “map” the current investment(s) to the fund(s) in the new lineup that most closely approximates each existing style/type. The recurrent question in this case is whether ERISA Section 404(c) protection applies to the resulting choices, assuming that participants are notified in advance of the mapping and that the plan otherwise complies with Section 404(c).

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Assume for the moment that the plan does comply with Section 404(c) prior to a change in fund menu. Under current law, the fund choices that result from the elimination and replacement of an investment fund, or the mapping of funds as part of a plan conversion, are not protected by Section 404(c). The reason? The employees did not direct the investment of their funds into the replacement vehicles affirmatively, but had those investment choices made for them as part of the mapping process. This is true even when the plan participant selected the original investment that is subsequently mapped to a like investment.

When assisting a plan in this situation, advisers should avoid a course of action that precludes that protection without good cause. So, what should an adviser recommend?

One option is to require all participants to complete new investment elections prior to the implementation of the change in the investment fund or plan conversion. If the number of participants in the plan is relatively small, this may be a viable avenue. Under this option, participants who do not return an election form would have their funds invested in the plan’s Section 404(c) default fund.

Another option (in the plan conversion context) is to liquidate all investments prior to the conversion and to place the proceeds from those liquidated investments in the plan's Section 404(c) default fund while the conversion is taking place. As soon as the assets have been transferred, the plan sponsor could advise and encourage all participants to direct their investments among the new alternatives. Of course, the investments of any participant who chose not to direct his/her investments would remain in the default investment fund. Obviously, great care must be exercised in ensuring that the selected default investment is prudent under the circumstances, since the plan fiduciaries would remain responsible for those investment decisions.

A third option is to map the funds to like investments and to encourage all participants to file elections that direct new contributions and confirm the transfer of existing contributions to the targeted funds. Once the participant has re-exercised control, assuming all other requirements of Section 404(c) are met, the plan sponsor once again will enjoy protection under Section 404(c), at least as to future contributions for which elections are received.

Of course, a plan fiduciary simply could choose to accept the "breakage" in Section 404(c) protection. While this may not be as palatable to plan sponsors as the other options, the reasons to change investment funds may be more compelling than the perceived protections. After all, Section 404(c) protects only against the investment choices a participant makes, not against an imprudent investment menu.

If the options above do not seem appealing, there may be some good news just ahead. Effective for plan years beginning after December 31, 2007, the Pension Protection Act affords certain protections to fiduciaries under Section 404(c) during a blackout period where participants have exercised control over the investments in their accounts before a change in the plan's investment options, provided certain requirements relating to investment characteristics and participant notices are met. Additionally, the DoL has been directed by Congress to craft guidance on appropriate default investment options, guidance that would seem to provide Section 404(c)-level protection, at least prospectively, to plan fiduciaries that choose funds consistent with those directions—a solution that might prove to be the most workable of all.


Quana C Jew is a partner at the law firm of Arent Fox, focusing on ERISA, employee benefits, and executive compensation. Quana has served as a guest lecturer in the employee benefits area for various law school, bar seminar, and employee benefits-related organizations. She also serves on the Advisory Board of the Women's Pension Exchange. Most recently, Washingtonian magazine named Quana as one of Washington's best tax lawyers.

«