Managing the Vital Signs
A 5-point plan for "fitness" in 2014
- As plan sponsors take stock of their plans this year, they may need help with plan design, investment menus, or target date fund selection.
- DC advisors can offer tools and insights on how to get plan sponsors' plans in shape and convey your value.
As plan sponsors take stock of their plans this year, they are likely to encounter some "pain points" along the way, including plan design, investment menus, and re-evaluating target date fund (TDF) selections, just to name a few.
How prepared are you to help them relieve the pain? Do you offer the tools and insights to probe issues, diagnose potential plan "maladies," and prescribe possible remedies to address them?
If not, it may be a good time to assess your practice to see what you can do to help get your clients' plans in shape. After all, the more you can to do to help your clients drive retirement readiness, the better positioned you may be to convey your value and build your profitability in 2014.
"By marrying technology and consulting, we think we can help employees maximize their retirement savings." -Joel Shapiro, SVP, 401(k) Advisors
Performing a plan check-up
Here is a five-point plan that you can use to help your clients build optimal plans:1. Offer "holistic" plan therapy. There's a growing need for retirement plan specialists who can help plan sponsors take a broader view of plans, advising on menus, plan design, and ways to drive participation.
To support these needs, Aliso Viejo, CA-based 401(k) Advisors™ plans to release PLANavigator™ a proprietary technology that will be integrated into their core retirement plan consulting concept.
The concept, Courageous Plan Design™, can allow consultants to paint an interactive picture of plan impact as well as projected employer cost in real time, says Joel Shapiro, JD, LLM, Senior Vice President of ERISA Compliance.
"It can help consultants and plan sponsors on two levels," he says. "It will give them the courage to deliver the "bad" news about the obstacles that prevent participants from achieving retirement goals, and, it can encourage plan sponsors to take a paternal and impactful approach to adopting solutions to address these issues."
Shapiro believes that most industry pundits and organizations recognize the importance of automatic features, cessation of leakage points, investing due diligence, fee review, and proper asset allocation in making plans more effective.
But he believes "talk is cheap," for some plan sponsors. "A consultant can espouse the principles of behavioral finance until they're blue in the face, but until you can provide qualified and quantifiable plan impact projections and reliable, estimated projections of employer cost, most sponsors are reticent to making big changes," he explains. He believes that communication of these concepts through Courageous Plan Design can help move the needle.
"By marrying technology and consulting, we think we can help even the most skeptical sponsor adopt some, if not all, recommended changes to their plans, ultimately helping employees maximize their retirement savings," says Shapiro.
2. Resuscitate the TDF IPS. It is a suggested best practice for plan investment committees to review the IPS annually and update it as needed. But how many committees are familiar with how to review and update the TDF section of the IPS? A TDF IPS should include clear language describing the unique characteristics of TDFs. It should also provide a thoughtful process for evaluating managers and assessing performance. An unclear or incomplete IPS, on the other hand, can create confusion and, in extreme cases, undermine important fiduciary protections. BlackRock provides guidelines on how to build and monitor an effective IPS.
3. Get empowered. Plan design discussions can often be challenging for both plan sponsors and DC advisors. Often, plan sponsors are unsure of how they can improve the plan through different options and how they can ultimately impact participants. Advisors on the other hand, often lack the tools they need to help make baseline recommendations and to implement and track future changes.
To address these issues, Pensionmark Retirement Group has developed a new proprietary toolkit for advisors that is designed to integrate all steps in the plan design consulting process into one automated suite, according to President/CEO Troy Hammond.
"We believe it will help advisors manage all steps in the process, including proposals, investments and plan reviews, as well as introducing and developing customized asset allocation models," he explains. Developing a fully automated process can not only empower advisors to solve plan problems and issues, but it can also allow them to be more proactive about recommending and implementing meaningful changes to plans that can potentially improve plan effectiveness, Hammond adds.
4. Help ensure TDF alignment. In early 2013, the Department of Labor (DOL) issued recommendations for ERISA plan fiduciaries for DC plans on TDF evaluation and selection—including the rationale for selecting custom target date funds.
If some of your sponsor clients still view TDFs as one size-fits-all strategies, you may want to help by revisiting their target-date fund to make sure its glidepath is aligned with the demographics and needs of the DC participant population—and to document this due diligence and selection process in the IPS.
5. Help maintain fiduciary "fitness." When it comes to regulatory matters, change often appears to be the only constant in the DC industry. That's why Lockton Investment Advisors, LLC is focusing on enhancing both its compliance training for clients, as well as its internal training for its account executives and managers, says Natalie Willburn, Vice President in Lockton's Washington, D.C. office.
"Our goal is to help our clients stay ahead of the regulatory environment," she says. "To do that, we want to get our staff up to speed so they are aware of what's happening and can help clients understand how the changes relate specifically to their plans, and how to take appropriate action."
Lockton's ERISA counsel, Sam Henson, regularly travels to Capitol Hill with his peers to provide feedback to the regulatory and legislative offices, and to obtain updates as soon as they become available. To keep clients in the loop, Henson and team publish compliance alerts to send to clients within a day or two of the announcement. They also create a quarterly roundup of the legislative and regulatory updates to share during investment reviews with clients.
To enhance its internal training, Lockton created a national training program that provides associates with the opportunity to improve their client presentation and technical skills as well as their networking acumen so that they can effectively communicate and share ideas with peers across the country.
The information contained in this material is derived from third-party sources deemed reliable, but BlackRock does not guarantee the completeness or accuracy of the information. The material is provided as an educational tool and should not be considered investment advice. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. BlackRock is not engaged in rendering any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice.
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