Andrew Kirton, Jeff Schutes and Akhil Sethi have been
appointed to senior positions in investments and retirement divisions in global
regions at Mercer.
The three executives had been serving in other roles at
Mercer. One of the objectives in making the appointments is to rotate
responsibilities in order to expand the breadth of their expertise and to gain
the benefit of cross-fertilization of experience across investment disciplines,
said Julio A. Portalatin, president and CEO of Mercer. These senior
appointments reflect the importance of investment and retirement opportunities
in Europe and growth markets, as client needs are changing and growing rapidly.
Kirton has been appointed head of investments business in
Europe, succeeding Tom Geraghty, who has assumed the post of market leader and chief
executive for Ireland.
Schutes has been chosen to head investments business in the growth markets, a
newly created position, which includes Asia, Middle East and Turkey, Africa and
Latin America.
Sethi has been appointed head of retirement business in the growth
markets, also a newly created position.
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Recently,
I had the opportunity to meet with a CFO and owner of a nationally recognized
manufacturer to discuss its 401(k) plan. As is customary the first time I meet
with a potential client, I attempted to ask a lot of questions about the
culture of the firm, its history and the attitude towards the fiduciary act of
sponsoring a qualified retirement plan. What I knew prior to the meeting was
that the average account balance for the firm’s participants is approximately
$40,000, 20% of employees who are eligible do not participate and an additional
30% of employees only contribute 1% to 3% of earnings to the plan, despite a safe
harbor match.
During
that initial meeting, I discovered the plan offers 19 funds (10 of which are
Large Cap, Domestic focused), and less than 5% of the participants use the target-date
fund offerings. When I asked questions about the fund line-up, the CFO became
agitated and cut me off. “We only need to offer funds that out-perform their
competitors. Our broker provides us with a quarterly report from the platform
(a major insurance company) and we change funds according to that report.” I
thought this was interesting. I also thought about the 20% of the employees who
have zero chance of achieving retirement readiness and the additional 30% that
have almost no shot.
The title of this
piece comes from the follow-up conversation with the CFO a couple of weeks
after the initial meeting. The CFO had requested a report about fund
performance, which was delivered. When he asked me about the funds in the
follow-up, my response was simple, “Funds and performance is only about 1/15th
of the total experience. In fact, for the 20% of your employees that aren’t
participating, it’s pretty much a moot point.” The CFO wasn’t happy with my
response. In fact, he became irate. Just before he hung up on me, he screamed
into the phone, “One Fifteenth!!! I can’t believe what I’m hearing! The only
responsibility we have is to offer good funds!” With that, the line went dead……
Somewhere
along the line, the incumbent broker told the CFO that what he’s doing is
perfectly ok. Somewhere, the CFO got it burned into his head that offering
“good funds” was the only job he had. Somewhere, he wasn’t given very good
advice about acting in the capacity of a fiduciary. And probably at no time in
his past did the concept of helping everyone at his firm save enough for
retirement enter into the equation.
The
point of this story is pretty simple. We as an industry have a heck of a lot of
work to do. This isn’t an isolated case; I’m sure that many of you reading this
recognize that set of conversations and the frustrations that go along with it.
In fact, when I’ve shared this story with others, they shared similar stories
with me.
In
my mind, Job One is helping each and every plan participant get the most out
the savings and investment opportunity that comes with a 401(k) plan. Embracing
the positive inertia of auto-enrollment (and auto-increase), the professional
management that comes with target-date funds, asset allocation funds and
professionally managed options helps the participant that needs the most help.
Giving more help to those who wish to participate in the process is critical,
as well.
If
you’re the incumbent broker on this particular plan, shame on you for allowing
this set of circumstances to fester.Better education and communication to the CFO and a better understanding
of the realities of the great American retirement income shortage may have done
some good. Having the backbone to say that there’s a better way would help, as
well.
One-fifteenth
of the total picture? For half of this particular company, I may have grossly
over-estimated the value of having “good funds.”
NOTE: This feature is to
provide general information only, does not constitute legal advice, and
cannot be used or substituted for legal or tax advice.