A Work in Progress

It cannot be denied that since the passing of the Pension Protection Act (PPA) a decade ago, defined contribution (DC) plans have vastly improved. That is particularly due to the wider adoption of automatic enrollment and escalation and the introduction of qualified default investment alternatives (QDIAs), including target-date funds (TDFs). Auto-enrollment rose from 17.1% in 2006 to 41.1% in 2015, according to the PLANSPONSOR Defined Contribution surveys for those years. Auto-escalation rose from 5.8% to 16.5%, and the use of TDFs nearly doubled, from 33.0% to 61.7%.

However, as we note in our cover story, “Momentum”,there is still work to be done to continue to improve retirement outcomes. Although participation rates in defined contribution plans rose from 70.1% to 77.1% between 2006 and 2015, nearly 25% of workers still fail to participate in their employer’s DC plan. Even more troubling is that half of all Americans are not offered a workplace retirement plan in the first place. Moreover, the average deferral rate is only 6.4%—multiple percentage points away from the emerging recommendation of 10%. Obviously, retirement plan advisers have much to celebrate since the PPA passed—but a tremendous amount more work can be done to get Americans on the right track for a secure retirement.

In “Scaling the Facts”, we present findings from PLANSPONSOR’s 18th annual Recordkeeping Survey that reveal adviser-sold recordkeepers’ business models, fee structures and adviser resources. The services recordkeepers most commonly offer are education and enrollment support, plan benchmarking, legislative updates, plan design services, rollover assistance and investment monitoring.

Advisers have long been aware of the distinction between education and advice, but as we note in “Staying Within Bounds”, the Department of Labor (DOL)’s new fiduciary rule underscores the importance of using retirement calculators and retirement income projections to convey general information only and not specific advice. As one leading Employee Retirement Income Security Act (ERISA) attorney says, if an adviser offers advice, he needs to be sure that the recommendation does not enrich him.

If you are looking to grow your business, you might want to consider the micro-plan market. “Servicing Micro Plans” shows them to be a highly fertile segment due to the fact that so few of them have the benefit of a retirement plan adviser, and those that do are typically served by a generalist rather than a specialist. However, the key question is how do you set your fees and services so that working with micro plans can be profitable. The answer, say our sources, lies in leveraging the services of providers and creating something of a template rather than customizing services.

Nearly one in four (39%) employers without an adviser would find guidance on voluntary benefits extremely or very valuable, according to the “2016 MassMutual Benefits Advice Study.” In “Strategic Partnerships”, we lay out the considerations to bear in mind when partnering with an insurance benefits broker and how that can expand your client base.

I hope these articles help you think “out of the box,” expand your client base and boost your profits.