Client Insights

The traditional retirement plan consultant was really an investment consultant, brought in to help select and monitor a plan’s lineup. However, in today’s retirement landscape, that traditional role often is dwarfed by that of the plan consultant. Retirement plan advisers work tirelessly to help plan sponsor clients meet their fiduciary duties and to guide their participants to prepare adequately for retirement.

Of the many hats plan advisers wear, it can be difficult to determine which one plan sponsors value most, as decisions about services are often client-specific. All sponsors need to take care of their retirement plan participants, though. Below, six of the finalists in this year’s PLANSONSOR Plan Sponsor of the Year awards discuss what concerns have made them seek out an adviser for help and how their adviser has influenced their plan design and outcomes.

Each plan sponsor cited the attention it receives quarterly from the retirement plan adviser: the market overview and investment lineup review. Most also discussed the presentation of plan statistics, such as how participant balances have grown overall and how many participants have outstanding loans. This is not where they most often sing the praises of their consultants, however. Insights from sponsors can help retirement plan advisers understand where they might add value to their own clients—and how some of the most important services might be those they devote little time to.

A 15% Deferral Rate

With the help of its adviser, CapTrust, in Richmond, Virginia,­ the Texas Association of School Boards Inc. (TASB) of Austin, Texas, has set the bar very high for its 403(b) plan. A year ago March, the plan began automatically enrolling participants into a balanced fund at a 5% deferral rate, with TASB contributing 2% for every 1% deferred, resulting in a total contribution to the plan of 15% of salary. This was quite a departure from its previous 6% nonelective contribution, which had resulted in many people contributing nothing of their own, “because they assumed this was good enough,” says Nancy Cotton, associate executive director, planning and human resources (HR) at TASB.

“We [kept] hearing that 10% should be the goal, but the more we talked with our plan adviser and administrator, Transamerica, the more we were hearing that we really needed to push that to 15%,” Cotton says. This “rich” match is necessary to “give employees what they need when they retire, and [it] also encourages employees to have some buy-in and take ownership of their future and their retirement,” she says.

When TASB first considered the change, CapTrust and Transamerica presented various designs, best practices and costs. “We were truly partners,” Cotton says. “We leaned on them for financial advice, and it worked out very, very well.”

Since TASB overhauled its plan, the percentage of active employees has soared from 60% to 97%. In fact, some employees now contribute more than 5%, and, through the Transamerica website, they can set the plan to automatically escalate their savings. Cotton attributes this success rate to CapTrust and the work the advisory firm has done with participants—specifically, providing education and personal financial advice—since the plan was redesigned. “They have gotten rave reviews for that,” she says.

“We’ll continue to offer these [personal sessions] three or four times a year because [of the] positive feedback from our employees, who really appreciate having that opportunity to talk with a financial adviser who isn’t trying to sell products,” adds Vera Aynesworth, TASB human resources director.

‘Understandable and Workable’

“To give people an opportunity to retire and keep our plan understandable and workable” is the overarching goal of the 401(k) plan at Landsman Development Corp. in Rochester, New York, says President and CEO Jim Goff.

Most employees of the commercial and residential real estate developer and manager are maintenance, housekeeping and grounds workers, many of whom speak Spanish as their primary language and who make little money, Goff explains. To help them make sense of the 401(k) plan, Goff turned to adviser Merrill Lynch.

To keep the lineup simple, Merrill Lynch’s Eidlin-Kilmer Group, also of Rochester, offers just three “Goal Manager” managed accounts: an aggressive, a moderate and a conservative portfolio. Merrill Lynch explains these portfolios to Landsman’s 150 employees in group meetings and with Spanish brochures. As a small-plan sponsor, Goff values not just Merrill’s investment expertise but its fiduciary and regulatory contributions to the plan, as well as its nonvoting participation at the quarterly investment committee meetings. “They give us benchmarking criteria against both internal and external models,” he says. “We like to be in the top quartile of the categories we’re in.”

In keeping with the mission to make the plan more understandable and accessible to employees, Merrill Lynch has also prompted Landsman to automatically enroll every new employee at 2% of pay with a match of 25 cents on the dollar for the first 4% in contributions. “If you want to get out, you have to come to us and opt out in person,” Goff says. This has resulted in a 100% participation rate among employees ages 25 through 39 and 86% companywide.

Re-enrollment of existing participants and an annual 1% automatic escalation up to a 6% ceiling will be the next steps, Goff says. With the help of Merrill Lynch, he is also considering taking some of the funds from the company’s profit-sharing plan to increase the company match to 25 cents on the dollar for the first 6% in contributions. It’s “almost like building a product line and making iterations to keep it fresh and keep people thinking about it,” he says.

There is still work to be done, however. After speaking with other plan sponsors, Goff decided to ask Merrill Lynch to provide aggregate and individual retirement readiness reports, as well as to augment group meetings with one-on-one sessions.

‘Superb’ Services

Range Resources Corp., an oil and gas exploration company headquartered in Fort Worth, Texas, first hired its adviser, Lockton Dunning Benefits of Dallas, in 2010 because the firm wanted “a 3(21) fiduciary partner, investment expertise, guidance on 401(k) plan best practices and support so that everyone can have a successful retirement,” says Patti Williams, equity/retirement plans administrator at the firm. With the help of its retirement plan adviser and the plan’s recordkeeper, T. Rowe Price, Range Resources adjusted its plan to automatically enroll participants into target-date funds (TDFs) at 6% of salary with an annual 1% escalation up to 10%, paired with a dollar-for-dollar company match up to 6%.

Range Resources appreciates what some might see as the standard benefits of working with an adviser: the fact that Lockton Dunning offered to provide a quarterly scorecard for each of the funds in its investment lineup and to benchmark those investments against similar funds. The adviser went a step further, though, to disclose how its own fees compare with others, Williams says.

Beyond the traditional quarterly meetings to discuss 401(k) plan market trends—“what other companies are doing in similar situations”—is a highly valued intangible benefit, she says. Lockton Dunning also handles meeting minutes and all plan documents, and even offers fiduciary training for the investment committee.

Lockton Dunning has brought “superb” competencies, she continues, and they help the plan sponsor navigate unfamiliar waters. “One of the first things [the firm] did was move us into institutional funds with reduced fees—that was a big turning point for us because our plan had reached a size where we could qualify for them.”

‘Prepared for Their Future’

The purpose of the retirement plan at Gables Residential Services of Boca Raton, Florida, is to “ensure our work force is prepared for their future,” says Philip Altschuler, senior vice president, human resources, for this developer and manager of multi-family apartment buildings. “Our goal is for people to see how easy it is to save through the 401(k) plan—and to build trust.” Nearly two-thirds of the 1,300 employees are hourly and nonexempt: leasing and maintenance workers, along with groundskeepers—many from Spanish-speaking countries where people have little faith in financial institutions, he says. Thus, trust is critical.

This prompted the company to hire Meltzer Benefits of Bethesda, Maryland, six years ago to provide “participant education; investment selection and monitoring; fiduciary guidance to the investment committee; and plan design consulting—and to make sure we’re in line with the market,” Altschuler says. Meltzer provides targeted communications to different subsets of Gables’ work force, he adds. The adviser also holds educational seminars and offers one-on-one meetings to review each participant’s portfolio and his retirement readiness score. For the Hispanic workers, Meltzer finds that small group sessions led by a Spanish-speaking adviser work best.

The adviser’s work is supplemented by the plan’s recordkeeper, MassMutual, which helps engage participants. For example, at Gables’ annual health and financial wellness fair, MassMutual uses iPods to show workers how their savings compare with others’ in the plan. “This has created a group mentality. People often instantly increase their savings, or if they weren’t in the plan already, they sign up,” Altschuler says, noting that this effect is augmented by retirement calculators and tools on MassMutual’s website.

Since 2009, results have been phenomenal, with the participation rate jumping from 45% to 85%, and the percentage of workers on track to replace 75% of their income rising from 56% to 62%, he says.

Meltzer has also developed an investment policy statement (IPS) and, twice a year, benchmarks the plan fees and funds in Gables’ lineup against category peers. Furthermore, Meltzer offers fiduciary training to the investment committee and has a newsletter on new regulations and developments in the retirement plan industry.

Altschuler says he is very satisfied with his adviser, describing Meltzer as “approachable, proactive and patient.”

‘An Objective, Third-Party View’

Cox Smith Matthews, a law firm headquartered in San Antonio, Texas, had been working with Fidelity Investments as its recordkeeper for many years, but in mid-2012 the firm decided it needed an “objective, third-party view to examine its fees, performance and selection of funds,” says Mary Potter, a shareholder in the firm. The plan sponsor was also becoming overwhelmed by questions from participants, asking how they should invest their funds, so participant advice was another requirement.

Cox Smith began looking for an adviser by sorting through the contact information “from all of the advisers that had contacted the firm over the years and zeroing in on fee-only advisers,” Potter says.

“From a personality perspective, one of the main drivers was to find someone who would work well with our participants,” says Barclay Wong, director of administration at Cox Smith. Because of its professionalism, and what was seen as “loyalty to the plan and to the participants, the firm’s plan committee immediately fell in love with The Maresh Yoshida 401k Group of Austin, Texas, even though it was not the cheapest,” Wong says.

As part of the new adviser’s plan examination, one of the first steps was to send out a request for information (RFI) to recordkeepers. Using that RFI as a benchmark, Maresh Yoshida worked with Fidelity to lower its fees to a flat charge of $169 per participant. Next, the adviser delivered on its promise by offering one-on-one advice, introducing participants to the notion of retirement readiness.

Better plan design was next on the agenda for Maresh Yoshida, which got Cox Smith to automatically enroll every participant at a 5% deferral rate with 1% annual escalations up to 10%. “Just putting in automatic enrollment and automatic escalations has led to increased balances and a higher percentage of people deferring,” Wong says.

The last step of the plan overhaul was examining the choice of target-date funds. With Maresh Yoshida’s guidance, Potter says, Cox Smith determined that moving to a TDF suite from Vanguard better matched the investment philosophy of the firm’s participants.

‘Actually on Track’

Vermeer Corp. has big plans for its 401(k). First, it aims “to make sure all of our investment options are meeting the criteria of our investment policy statement [IPS],” says Cheri Klyn, director of shared services at the Pella, Iowa-based manufacturer of agricultural and industrial equipment. “We want to make sure that our total plan cost is lower than average for plans the size of ours. We want a high participation rate and a high average deferral rate, along with investment diversification. And last—but I think probably most important—we want to make sure our plan participants are actually on track to have enough money to retire comfortably,” Klyn says.

Vermeer has been with the same financial adviser, Alliance Benefit Group Financial Services (ABG) of Albert Lea, Minnesota, since launching its 401(k) plan in 1986. Vermeer initially hired ABG to help with plan design and compliance, Klyn says. Since then, however, ABG’s services have become much broader. Vermeer has valued ABG’s introduction of an education policy statement, risk-based model portfolios, one-on-one meetings, aggregate and individualized retirement readiness reports, and proactive participation on the investment committee.

The advisory firm also “updates us on the industry, giving us innovative, contemporary, new ideas,” Klyn says. In the area of plan design, for example, the advisory firm recommended and helped to implement a company match of 50 cents on participants’ first 6% of contributions and an annual 1% deferral escalation up to 10%.

ABG also introduced the 90/10/90 goal of 90% participation, a 10% average deferral rate and 90% of workers invested in a diversified portfolio. Although it still has a little way to go, that target is in sight. Klyn credits ABG’s educational campaign and individualized meetings, which it began three years ago, for inspiring Vermeer’s primarily blue-collar work force to boost the average deferral rate from 5.28% to 9% and the participation rate from 78% to 95%. Three years ago, only 19% of participants were on track to replace 75% of their income in retirement. Within two years, that number rose to 40%.

Art by Gerard Dubois