Bringing Clarity

The job of a retirement plan adviser includes helping plan sponsors reach their corporate goals—often, one of which is to improve plan statistics. But when advisers suggest plan design solutions that can help to that end, many sponsors reject these solutions as the wrong fit for the plan or company at the time.

Sponsors’ greatest objections involve auto-enrollment, match restructuring and employee education—typically because of cost, extra work and potential employee disapproval. However, sources say, advisers should not simply let those objections stand—education is the key to overcoming sponsor objections to plan changes.

Stig Nybo, president of Transamerica Retirement Services, believes the days of the plan sponsor saying he wants the “easy button” are waning. “People spend a lot of money and time on health plans, and the retirement side has been an afterthought,” he says. “It is very clear that the 401(k) is the prominent means by which employees will be able to retire. It is important for advisers to get the plan sponsor to take it seriously. It is important that we educate them.”

When presenting ideas to a client, “we hear a lot of ‘I didn’t know you could do that’ from the plan sponsor,” says Keith Gredys, CEO and president of Kidder Benefits Consultants Inc. “They think it is more of a commodity. They don’t realize there is flexibility [in plan design].”

“You need to have a knowledge process with the plan sponsor to help overcome some of the misconceptions of what is possible,” he adds.

Gredys says advisers must sit down with plan sponsor clients and discuss what they are trying to accomplish, and then educate them about what is possible for their plans.

Ultimately, in order to work with the plan sponsor to combat any differences during the plan design process, Nybo recommends having regular meetings. “During the course of [those meetings], you are making them understand what is important to the plan. If you are going to do anything for a plan, you have to put together a blueprint.”

Gredys says, “Then you take that information you gathered and come up with solutions for them. You have to have a consultative approach. You have to get from the massive opportunities to some workable opportunities for them. Take all that potential and bring it down to something that is usable.” Each situation is unique, and the adviser needs to demonstrate to plan sponsors how they can restructure their plan to achieve goals. One approach is to present these ideas through case studies, he adds.

Gredys emphasizes that the key to working with a sponsor on plan design is to show the plan’s flexibility. “The clients are running a business; they want to be able to have flexibility,” he says. He adds that it is important to build the plan to match the sponsor’s entire business.

Automatic Enrollment  

Most advisers meet resistance from plan sponsors about implementing automatic enrollment, whether about administration, cost or complexity, sources say.

Nybo, for one, says plan sponsors are reluctant about auto-enrollment because of the complexities of its implementation and potential pushback from employees. Many plan sponsors have the perception that if employees are automatically put into a plan, they will not like it.

“I think we as an industry have a responsibility to get people to a secure retirement, and that does involve some additional work,” comments Nybo. “The reality is, auto-enrollment is effective at getting people into the plan. We have to make sure we [help people choose] the plan that benefits them. We need to get very persuasive and really tell plan sponsors why they need to do this, and prepare them for the additional work that it is going to take.”

According to Philip Steele, president and CEO of Pension Architects, one of the reasons plan sponsors push back against auto-enrollment is because it can create more of an administrative burden for them. “When we started [implementing automatic enrollment], one of the things we noticed was some of the plans experienced more administrative work than they anticipated,” says Steele.

He adds that some employers also think auto-enrollment­ is too much like a big brother. “Certain sponsors still have that ‘we don’t want to force something on [participants] against their will, even if it is good for them.’”

Stanley D. Milovancev, executive vice president of Sequoia Financial Group LLC, says that when he talks with plan sponsors about auto-enrollment and they think it will upset plan participants, he always explains that 90% of participants will stay enrolled.

“When they see that in our experience it has never been a big problem, that historically we have received positive feedback from employees and that everyone can opt-out, we almost always get support from the plan sponsor,” Milovancev says.

Another way to cope with anxious plan sponsors or employees is to schedule the implementation of auto-enrollment of a plan when it would line up with a group educational setting, says Michael A. Chisnell Jr., director of retirement services at Sequoia Financial Group LLC. This way, Chisnell says, he can answer participant questions in person, rather than the plan sponsor sending out the required letter or a notice to employees. “We see value in having an explanation, and seeing that communicated [to plan participants face to face],” he says.

Steele says that in order to show a plan sponsor how auto-enrollment might suit the company’s plan, he suggests providing examples and statistics where auto-enrollment has made a difference. A further option is for the plan sponsor to speak with existing clients who have adopted auto-enrollment and experienced success.

Another reason for plan sponsor resistance to auto-enrollment is the cost of the match when participation rates reach 90% or higher. “You can also get pushback to the expenses that [auto-enrollment] will increase with employer contributions and administration,” says Steele. Although the match will cost more, employers have options for bringing costs down, whether it’s restructuring the match or determining other areas where money is being budgeted but not spent, sources agree.

Match Restructuring 

Restructuring the match can also cause conflict between the plan sponsor and adviser. In order to encourage increasing plan participation—because many participants contribute up to the match rate—some companies are changing their matches to keep the company contribution the same but make participants contribute more to receive the entirety. For example, some companies are changing so that participants must reach a minimum deferral to begin collecting the match (i.e., participants used to get a 2% employer contribution across the board, but now have to contribute 6% to receive it), while others might take their $0.50 per dollar up to 5% and change that to a $0.25 per dollar contributed up to 10% (so the company contribution still nets to 2.5%).

Nybo explains that plan sponsors want to ensure all employees receive the 2% that the company is offering. However, other plan sponsors feel it is their responsibility to get employees to the point that they are retirement ready. Restructuring the match so that people only get the contribution after they contribute at 6% can help employees save more; however, the casualty is the people who believe they cannot afford to put 6% into the plan.

“There is a very strong argument to be made that it is our responsibility to get the largest number of people to a position where they can retire,” says Nybo. “This is a strong argument to stretch out the match to get people to get their rates up. Advisers should explain why they are doing what they are doing.”

To participants who are frustrated with the changing of the match structure, Nybo says advisers and plan sponsors should “acknowledge that there is a trade-off, and we do understand that people may not be able to get all of it.”

Employee Education  

Participant education is another point of disagreement advisers have faced with plan sponsors, objections coming about both timing and scope. Says Francisco Negron, vice president/national director of relationship management at T. Rowe Price, “Some plan sponsors may be focused on other things, and employee education may be one of those things that gets put on the back burner.”

The best way to show plan sponsors the importance of employee education is to demonstrate the impact it will have on an employee’s retirement savings or other company goals, such as improving participant investment diversification, Negron says.

Steele says some plan sponsors view the increased education his company mandates as more liability for the company, and they prefer to keep things simple. “Not that long ago, sponsors were pushing back on the fact that our consultants got involved with their employees with their entire planning future,” he says. “They are waking up to the fact that if we don’t do the entire picture, the 401(k) itself isn’t going to do the entire job. We need to give them a whole shot at retirement.”

Negron adds that some plan sponsor objections to employee education come from industrial settings where employees are shift workers. In those cases, Negron says the best solution to overcome the objections is to hold employee meetings around the clock, based on when employees are coming off their shift. Another option, he adds, is to implement Webinars and to leverage technology to make employee retirement education more accessible to all employees.

Participants are not the only ones who benefit from education, Steele says. “At the end of the day, plans have to start with educating the sponsor committee. We have to educate the client to what all these things mean … find out what resonates with them and what they are able to help us deliver. It is a joint collaborative effort. We want to educate about the benefits of these things that they are pushing back.”