Client Service October 13, 2017

PANC 2017: Plan Sponsor Confidential

Two winners of 2017 Plan Sponsor of the Year awards reveal how their adviser helped move the dial on their plans.
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At the “Plan Sponsor Confidential” panel at the 2017 PLANADVISER National Conference (PANC), Wednesday, winners of two of this year’s Plan Sponsor of the Year awards spoke about how their adviser has helped them—and why they thought they needed to start working with an adviser in the first place.

“The main reason is inertia,” said Larry Schmidt, director of human resources (HR) at Searles Valley Minerals, of why Searles hired Bukaty Companies Financial Services as its retirement plan adviser. “We are a mining company, and the leadership and employees don’t change often. Some of our employees are in their 80s. We are cautious in making changes, but we realized that sponsors will ultimately be held responsible for plans that don’t produce. We needed to get off the dime.”

The retirement plan committee of LSG Group “wasn’t convinced we needed help from an adviser because we had help from our finance department,” said Tobias Junker, vice president of human resources total rewards and labor relations. “But when we were asked about our fiduciary responsibilities, [we could not answer.] We went on a journey 15 years ago and decided to create a three-pronged approach comprised of the fiduciary committee, the recordkeeper and a retirement plan adviser, whose independence from the recordkeeper is key,” Junker said.

Schmidt agreed that it’s a fallacy to think a recordkeeper can accomplish all of the things that an adviser does. However, by “working together, they can work well in sync,” he noted.

The primary task that LSG Group’s adviser was charged with, Junker said, was to combine the company’s 22 entities—all with their own 401(k)s and very different needs. The adviser issued a request for proposals (RFP) and meticulously reviewed the results over the course of two years, he said. Then, once Bank of America Merrill Lynch was selected as the recordkeeper, it took LSG and its adviser nine months to create an investment lineup “to serve all the different needs, all the different risk profiles,” Junker said.

The end result was lower administration and investment fees, and higher participation. The adviser also recommended automatic enrollment and escalation, which, Junker said, “work perfectly.”

NEXT: ‘Our adviser gave us the courage’As far as what Bukaty has brought to the table for Searles, Schmidt said, “There are dozens of examples of how [Vince Morris, president] has helped us,” not least of which is recommending automatic enrollment at a 4% deferral rate paired with 1% annual escalation up to a 10% threshold and re-enrollment into a target-date fund [TDF]. That went against everything we believe, in terms of making decisions for employees—but the vast majority of plan participants never made a peep.

“We went from an 83% participation rate to a 96% participation rate, with a 40% increase in the average balance,” Schmidt continued. “Our adviser gave us the courage to do it. Our adviser is very, very thorough. He gives us the defense for every investment decision we make, and his work has resulted in much less turmoil in the fund lineup.”

Engaging participants through on-site meetings at the mines and holding focus groups with employees to find out what they want have also been critical, Schmidt said. “Vince Morris has helped us think about what we are doing and provides us with detailed quarterly minutes.”

Targeted communication is critical, Junker agreed—particularly for LSG, which has 120,000 participants in 60 countries speaking 40 different languages.

As far as how LSG’s adviser could improve his services, Junker said he realized he and the other members of the fiduciary committee can’t just rely on their adviser and recordkeeper. “We must keep on challenging each other,” he said. “At every quarterly meeting, we now have a lively innovation and challenge session,” which is very productive, Junker said.

Data & Research October 13, 2017

PANC 2017: How Data Interpretation Affects Retirement Projections

Two leading retirement industry executives refute the claim that the nation faces a retirement crisis and point to several ways retirement plans can be strengthened.
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In the 2017 PLANADVISER National Conference panel “How Data Interpretation Affects Retirement Projections,” Wednesday, executives from two leading retirement trade associations that conduct research on the state of the industry discussed how current plan design tools could be optimized to avert a national retirement crisis. Each man also shared initiatives his organization is taking to make the system even stronger.

“There was a recent hit piece in the Washington Post describing the ‘retirement crisis,’ which was countered by an op-ed in the National Review saying it is more manageable [than what some pundits are saying],” noted Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association (DCIIA).

The Employee Benefit Research Institute (EBRI) recently studied the accumulation phase of people up to the age of 64, taking into account not only their defined contribution plans but also their defined benefit (DB) plans, individual retirement accounts (IRAs), Social Security, and housing equity, noted moderator Alison Cooke Mintzer, editor-in-chief of PLANADVISER.

EBRI’s 2014 data showed that 56.7% of Early Baby Boomers and 58.5% of Late Boomers will not run out of money in retirement, Minsky agreed. Nearly 90% (86.4%) of participants in the highest-income quartile, 71.7% of those in the third quartile, 52.6% in the second quartile and 16.8% in the lowest-income quartile will not run out of money, he continued.

Making plans available to employees is also critical, Minsky said. Participants who have been eligible to participate in their DC plan for 20 years or more, and have done so, are on a pretty solid trajectory to not run out of money in retirement, he said, observing that EBRI projects that 94.7% of these folks in the highest income quartile, 87.7% of those in the third quartile, 71.3% in the second quartile, and 35.9% in the lowest-income quartile will have adequate financial resources in retirement.

But plan design is critical to get participants to the finish line, Minsky said. DCIIA projects that participants in plans with voluntary enrollment throughout their working career and who retire at age 65 will have a portfolio 5.02 times their final salary, he noted. However, those in plans with automatic enrollment, “even if implemented imperfectly” at a 3% deferral rate without automatic escalation, will have 6.66 times their final salary, he continued. “Just that one modest change has a huge impact,” he said.

If auto-enrollment is paired with auto-escalation up to a 10% threshold, participants can retire with 7.85 times their final paycheck, Minsky said, and if that combines with no leakage, they can retire with 8.54 times their final salary.

NEXT: The call for ‘thoughtful plan design’

“Leakage is a pretty wide-open back door. Design matters,” he stressed. “The current DC system can do much better with thoughtful plan design, including automatically enrolling participants back into the plan at the end of their hardship withdrawal payments. This is all infinitely doable. You hear about how the system isn’t working—but look at how you can get a worker to nearly nine times final salary in just [his] DC plan alone.”

Mintzer said, “With news of retirement plan litigation occurring on a weekly basis, plan sponsors are terrified of being sued. The reason why this matters so much is because, if people retire securely, they won’t sue their employer. Advisers need to tell plan sponsor clients this is why these tools need to be optimized and to convince plan sponsor committees to be proactive.”

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Beyond these plan design tools, The SPARK Institute is working in six major areas to improve Americans’ retirement readiness, said Tim Rouse, the institute’s executive director. SPARK is advocating more effective use of automatic plan features—including auto-portability—the expansion of the saver’s credit and the small-employer tax credit, an increase in contribution limits, open multiple employer plans (MEPs) and retirement income solutions within DC plans, Rouse said.

He pointed to another recent EBRI study, which found that, if the industry had auto-portability from one DC plan to another, so that a participant’s balance was automatically rolled into his new employer’s plan, “there would be an additional $2 trillion in retirement savings,” Rouse said.

Rousesuggested that the industry campaign the Internal Revenue Service (IRS) to include the saver’s credit on participants’ W-2 tax forms.

“This is an untapped opportunity for advisers,” Minsky concurred.

And open MEPs “could solve the problem for a lot of small employers concerned about the fiduciary responsibilities and administrative costs” associated with offering a DC plan, Rouse said. “Combined with a $7,500 employer tax credit, these two initiatives help move the needle for a big chunk of plan sponsors.”

Minsky added, “There is no one silver bullet [to help improve Americans’ retirement readiness]. Are we willing to rethink the paradigm? We need to automate everything—including plan design, at the right levels, with escalation and sensible investment defaults. If we did that, we would be in pretty good shape. We know the answers here.”

Minsky and Rouse concluded the panel by observing that, if recordkeepers were able to consolidate participants’ financial information, the nation’s retirement outlook could appear significantly more optimistic.

Rouse said, while cybersecurity issues deter many recordkeepers from sharing information, some providers are seeking out better efficiencies, which could ultimately result in data aggregation.

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