Streamlining the Process

Art by Meredith Miotke

The micro-plan market offers opportunities for advisers, according to the 2019 PLANADVISER Micro Plan Survey. For one, these plans, which lag behind larger plans in many key areas of design, typically need improvement. There are ample opportunities to win this business because, says the survey, 38% of plans with $1 million to $5 million in plan assets do not work with an adviser.

For advisers, it is important to create an efficient model to serve this group of clients. Micro plans have somewhat of a reputation as being difficult to serve due to their small size and the cost of setting them up and administering them. However, advisers can leverage third-party administrators (TPAs) to create a repeatable and fixed process that would benefit the plans and their participants.

Jerry Bramlett, head of Ascensus’ TPA business, FuturePlan, in Austin, Texas, suggests that advisers find TPAs to partner with that are local to the client. “Over 50% of plans with less than $2 million in assets have a TPA, and their preferred way to work with a TPA is to work with someone locally,” he says.

Advisers working with TPAs should be mindful of the role each party plays in serving the client base. “TPAs focus on the details of plan design, and consulting. We primarily help the business owner and HR [human resources] departments understand and manage their benefit programs,” says Kelton Collopy, vice president, TPA services, at Tycor Benefit Administrators Inc. in Berwyn, Pennsylvania. “Advisers provide educational and investment expertise to plan participants and serve the plan by monitoring, explaining and providing fiduciary services. Together, we can explore potential recordkeeping solutions and align those services to the best interests of plan participants and meet the sponsor’s fiduciary responsibilities.”

The first thing advisers can do when working with a micro-plan sponsor is help the sponsor determine the goals of its plan, says John Blossom, founder and CEO of ABG Retirement Plan Services in Peoria, Illinois. “Many micro-plan sponsors have no idea what a retirement plan means to them or what they’re trying to accomplish,” Blossom says. “Those with an adviser have a better idea.”

When it works with a plan that has an adviser, John Hancock Retirement Plan Services’ TPA business makes it a point to align with that adviser, says Gary Tankersley, head of sales and distribution for the firm, in Denver. “Getting on the same page with the adviser is a critical step because the adviser exercises a lot of influence over the plan,” he says.

Advisers trying to determine how to effectively serve mid-market clients alongside micro plans may want to see how TPAs approach scale and efficiencies. For instance, ABG Retirement Plan Services (ABGIL) has been able to serve micro plans, which compose 90% of its client base, by also serving large plans with as many as 5,000 employees, Blossom says. In this way, his company “amortizes the cost of the fixed services” it provides, he says.

“Once you have a diversified book of business, you can create scale and offer the same tools to the small plans that you offer to the large plans,” agrees Scott Patton, senior vice president of business development at ABGIL.

Pooled Plans

One way advisers leverage the scale of TPAs is to pool plans together. “Creating scale is very important, and the best vehicle to do that is a pooled retirement plan solution such as an open MEP [multiple employer plan] or by pooling funds through associations,” says Jim Kais, senior vice president of retirement plans at Ameritas in Lincoln, Nebraska.

“You can use a principles-based plan design with a master prototype document that sets the design to promote the best outcomes for participants; sets defaults for the safe harbor; restricts loans; and encourages higher levels of savings and consistency across all plans in this pooled vehicle.,” Kais says. “TPAs can handle 25% to 50% more business when they work in this fashion. Plus, they can process data more efficiently, faster and with less error.”

To keep costs down and broaden the availability of a plan, it can be necessary to streamline its features, limiting flexibility in them—e.g., creating a limited adoption agreement with limited features, to cut costs, Blossom says. Some TPAs find success eliminating the potential for more exotic plan design that requires “more energy and expense [such as] new comparability plans that leverage contributions to the higher-paid individuals,” he says.

Along with that strategy, it is imperative to “make all of the plans the same, so when you are administering that block of plans, they’re all operating under the same provisions such as the same eligibility,” Patton says.

A critical aspect of this streamlining is to have “a pared-down, straightforward investment menu,” Blossom says. “That saves a lot of time for the recordkeeper, the third-party administrator and the adviser in implementing that plan.”

Besides scaling plan design, pooled plans also provide value in investment options. “We use a group trust to pool the investments to get better pricing,” Patton says.

An adviser will want to ensure the TPA is appropriate for his client base. Some have specialties. For example, TCG Administrators in Austin, Texas, which pools plan investments through co-ops, primarily specializes in K – 12 schools and governmental entities, says Scott Hauptmann, chief operating officer (COO) and executive vice president. “The efficiencies we achieve are through the economies of scale. … The co-op has one fund list that allows really small districts with as few as 30 employees to get the same purchasing power as Dallas Independent School District.”

Conversely, a company such as John Hancock Retirement has the scale to oversee micro plans in a wide variety of industries. “We need to be able to offer a solution that’s efficient for the plan sponsor and not cost-prohibitive; to do that, you need to simplify your approach,” Tankersley says. “You need to reduce the number of options that the micro-plan sponsor has to choose from—but with a mindset that you understand the different types of companies that are out there. So, we don’t offer a one-size-fits-all approach but, rather, streamlined solutions that are appropriate for different types of industries, be it a dentist’s office or a manufacturing plant.”

Other benefits advisers might seek access to when working with TPAs would be additional wellness and advice services. According to Kais, “TPAs struggle with offering advice or student loan repayment programs because it’s hard for them to get scale. But when you have 2,000 businesses in a pooled product, you can offer micro plans access to services typically not available in their market.”

One such tool that ABG offers plans of all sizes is SmartPlan, an education tool that informs participants “on a wide range of topics, from what a retirement plan is all about to how much to contribute and invest,” Blossom says.

Big Data

One of the biggest challenges small-business owners face when setting up a retirement plan is “getting the data on their participants,” Tankersley says. In his opinion, a TPA should be affiliated with a payroll company or become a payroll administrator so it can upload a plan sponsor company’s data onto the TPA system. “TPAs can set the data quicker and more completely than plan sponsors can,” he says.

In fact, TSC of Edina, Minnesota, performs this very function for its micro-plan clients, says Matthew Styler, vice president. “We often partner with their payroll firm and have it send the company’s payroll data directly to us, so we can manage it efficiently for the employer,” Styler says. “We really try to solve for the data manipulation challenges that many small employers have. It’s often difficult for them to know what data is needed from their payroll to manage the various benefits they offer.”

Likewise, Tycor Benefit Administrators links the census forms of its micro-plan clients to their plan documents, “so we know what a plan calls for, for compensation,” Collopy says. The firm has its clients sign a form giving it permission to file Form 5500 for them, Collopy says.

With Ascensus’ approach to its TPA business, “the plan sponsor has a local TPA close by to help it with any issues,” Bramlett says. “That’s why TPAs are critical in helping with plan formation and administration.”

Managing workflow in a systematic manner is yet another way to serve micro retirement plans efficiently, notes Amy Haddan, vice president of The Benefit Advantage in Auburn Hills, Michigan. “We have created a process for tracking how we manage plans that is the same, whether a plan has a handful of participants or 20,000 participants.”