PANC 2016: Defined Benefit Plans

“The death of defined benefit plans is overly exaggerated,” Jay T. Slusher, vice president and external adviser consultant with PIMCO, told attendees of the 2016 PLANADVISER National Conference in Orlando.

He shared that in the less than $10 million defined benefit (DB) plan market, there are 28,261 plans, with total assets of about $41 billion. In the $10 million to $100 million plan market, there are 3,275 plans, with total assets of about $115 billion.

Rodger Metzger, president and chief investment officer at Hooker & Holcombe Investment Advisors, Inc., who moderated the panel discussion, noted that Investment Company Institute data shows the government and private-sector DB market has more than $7 trillion in assets.

Cathy Berg, vice president and practice leader of defined benefit with Transamerica Retirement Solutions, LLC, said these plans can’t go away any time soon; it would take many years. She added that DB plan sponsors have many challenges—regulations, investments, costs—and they need help.

According to Slusher, advising DB plans is less consuming than advising defined contribution (DC) plans. “It’s really about meeting with the plan committee, reviewing funded status and adjusting investments if needed. DBs don’t have the same day-to-day tasks as DC plans,” he said.

However, Berg noted that DB plans do have some similar needs as DC plans—plan governance, fiduciary responsibilities and fee benchmarking. “DB plans also need the documentation of processes that DC plans have,” she said.

Slusher said if advisers are able to brush up about investment topics, they can differentiate themselves. “Knowing investment strategies and being able to articulate to plan committees how you arrived at allocations is key,” he told attendees.

Metzger added that it is a challenging time for DB plan funded status. “It’s a great opportunity to come in with a strategy. Plus, your audience is the president of the company, not human resources,” he said. According to Metzger, these skills can also apply to endowments and foundations, from which referrals are “staggering.”

Berg noted that providers offer tools for advisers to build their DB skill set. She added that coming in with not just an investment focus, but asking when the sponsor last did provider benchmarking, and looking at how the sponsor manages the plan can make an adviser stand out.

Berg said there is also an opportunity to help with data. DBs have data with custodians that pay distributions, data with payroll and possibly legacy payroll systems and data with actuaries. “These are all in silos and not coming together. Many are still using manual processes. There’s an opportunity for advisers to move data to automation and create a whole new world for DB plan sponsors,” she said.

Advisers should look at their own client base first to find DB opportunities, as some DC plan sponsors may also sponsor a DB plan, Berg suggested. On the other hand, if advisers find a DB opportunity, the plan may be terminated or frozen and there is also a DC plan, providing another opportunity.

“DB plans are a very under-serviced piece of the retirement market,” Slusher said.