Getting to Yes

One of plan advisers’ key duties is to help clients build an effective plan—one with design features that produce the best participant outcomes. Still, getting plan sponsor and committee buy-in for needed plan improvements can be an arduous task.

Advisers say the best way to overcome anticipated objections is to focus on the particular plan’s objectives. If the sponsor knows what these are, present data that illustrate how, and why, the plan design changes will help the company meet them.

“We now have a decade and a half of data relating to automatic enrollment and automatic escalation,” says Matthew Eickman, national retirement practice leader with Qualified Plan Advisors in Omaha, Nebraska. “That helps us navigate challenging conversations when a plan sponsor says, ‘You don’t know my people.’ You can say, ‘I may not know them, but I may be better able to predict how they’ll react to something than you are, across different age groups, genders or geographic regions.”

Besides broad data supporting the efficacy of plan design changes, it is likely that specific data about the client’s plan, demographics and challenges—and comparable data indicating what its competitors might be doing—is available. The discussions between the adviser and sponsor or committee will vary based not only on the particular employer’s objectives but on its employees’ financial needs.

If the sponsor is unclear as to the plan’s goals, the adviser can help it to determine them, then focus on the design features and changes that might aid in their achievement.

Of course, advisers also need to work with the plan sponsor to make sure its plan documents allow for proposed changes or whether the documents need amending.

What follows is a guide to overcoming common concerns that sponsors might voice about making design changes.

CLIENT CONCERN: “We just redesigned the plan.”

ADVISER RESPONSE: “Best practices keep changing, and you need to keep up.”

Reviewing and updating plan design is an ongoing task, given the ever-changing regulations for retirement plans, plus each employer’s evolving demographics and goals. “Plan design needs to be responsive to these changes in the business and workforce to ensure the needs of both are met—and that means reviewing the plan design on a periodic basis to ensure it still works as intended,” says Michael Olah, director of plan solutions at OneAmerica in Akron, Ohio. “A good plan design has a shelf life of around three to five years.”

Critical is to accompany each iteration of the design with tailored communications that tell the employee population why the company has made the adjustment and how that can help them meet their personal financial goals.

“Much of plan design effectiveness turns on the ability to market or present the change,” Eickman notes.

CLIENT CONCERN: “Our employees already opted out of the plan once.”

ADVISER RESPONSE: “That doesn’t mean they’re not interested.”

Automatic re-enrollment sweeps can counteract the inertia of employees who are not contributing—or not contributing enough—to saving for their retirement. Employees may still opt out or reduce their contribution rate at any time, says Tom Armstrong, vice president, customer analytics and insights at Voya Financial in Braintree, Massachusetts.

“When we see metrics such as ‘nine out of 10 employees let the re-enrollment or automatic enrollment happen,’ it’s a good indicator that the majority of participants appreciate and benefit from these course corrections,” he says.

CLIENT CONCERN: “Employees don’t want us to increase their contribution rates.”

ADVISER RESPONSE: “They may not push back as much as you think they will.”

According to research from J.P. Morgan Asset Management, of the 30% of plan participants whose employer automatically upped their contributions, 99% said they were satisfied.

Remind sponsors that simply enrolling employees in the plan may be too little to set them up for retirement security, particularly if the auto-enrollment amount is a modest 3% or 4%. Auto-escalations can raise workers to a more meaningful contribution level over time.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act lets employers automatically increase participants’ deferral rates in safe harbor plans to a maximum 15%. Employees may opt out or reduce their rate at any time.

An additional other benefit of utilizing automatic escalation is that it provides an annual touchpoint by which employers can reach out to their plan’s participants.

“You have to communicate and let them know it’s going to happen,” Olah says. “Most plans using auto-enrollment are now at least considering auto-escalation as well.”

CLIENT CONCERN: “We like the idea of financial wellness but aren’t sure it makes sense for us to pay for it.”

ADVISER RESPONSE: “Reducing financial stress can improve your company’s bottom line. Here’s how …”

For millions of Americans, one takeaway from the pandemic has been a greater awareness of their own financial precarity. A 2021 MetLife study found that 86% of employees reported that their finances were and are expected to remain a top source of stress; more than one-quarter said they are less productive at work due to financial worries.

Data from financial wellness provider LearnLux indicated even higher levels of financial stress—and among workers at every income level.” says Rebecca Liebman CEO and founder of LearnLux in Boston.

She says, “If that raises employer clients’ concerns, advisers might discuss how professional advice can help ease stress. The advice could be in the form of digital tools or access to an adviser who meets with employees one on one.

“Once an employer truly and genuinely understands the value of professional advice to its employees, and eventually the organization’s bottom line, it becomes more comfortable with various payment options,” Eickman says. “At that point, it’s easy to turn to plan assets as a fairly reasonable source of payment, in part because it requires no direct capital outlay from the organization, and in part because it requires no direct capital outlay from the employees.”

CLIENT CONCERN: “Expanding eligibility will cost our company too much.”

ADVISER RESPONSE: “Here’s exactly how much it will cost.”

Running the numbers for plan sponsors can assuage fears about the expense of implementing new plan design. For this conversation, advisers should come prepared with data on the potential expense of expanded eligibility—and the potential benefits, says Edward Gottfried, director of product at Betterment for Business in New York City.

“The trend has been toward shortening eligibility requirements, with more clients using immediate deferral,” Olah says. “Usually when you’re hiring someone, the person’s already thinking about the health insurance and other benefits, so you can get him involved and making choices about the retirement plan, as well. Then you can back it up with auto-enrollment, saying if he doesn’t make any decisions in 30 days, you’ll automatically enroll him.”

CLIENT CONCERN: “We’re more focused on recruitment than on benefits right now.”

ADVISER RESPONSE: “In this labor market, financial benefits can be a recruitment tool.”

Employers need to make their benefits package as attractive and valuable to potential and current employees as possible.

“Individual employees are starting to look around and evaluate other employment options, so we’re seeing a heavy focus from employers, right now, on retention,” Gottfried says. “They might not explicitly articulate it, but employees are thinking about how their employer supports them.”

Nearly three-quarters of workers polled by Betterment said they would be inclined to leave their employer for a job that offered better financial benefits. When asked what type would entice them, a 401(k) match was among the top answers, with 56% of those surveyed citing it.

Plan sponsors have been taking note; for instance, large employers such as KPMG and Boeing recently announced increases to their employee match. Advisers may participate in scenario planning with the plan sponsor to help it consider how various plan changes might affect its company, based on hiring trends; current participation and deferral rates; and automatic features.

CLIENT CONCERN: “We’re not sure an in-plan annuity makes sense for our clients.”

ADVISER RESPONSE: “There are plenty of other income solutions we can discuss.”

Keeping retirees, and their assets, in a 401(k) plan is increasingly a priority for plan sponsors. Nearly three-quarters of those surveyed last year by PIMCO said they prefer to retain retiree assets—up from less than half of sponsors in 2015. But there are multiple ways to go about meeting that objective.

“At Voya, we recognize that there is no one-size-fits-all approach to a retirement income solution,” Armstrong says. “Employers should consider providing several solutions to meet the diverse needs of their employees, or start with a simple solution and [develop] options and a default solution over time.”

Art by Harry Campbell