Working with a Retirement Plan Advisor
Build a Successful DC Plan
As a retirement plan sponsor, you have many responsibilities and important decisions to make. With a retirement plan advisor as your trusted partner, you have someone who can help you establish an action plan to support your goals and ultimately help you and your employees build a better retirement future.
Part 1: The Role of a Retirement Plan Advisor in Helping You Manage Your Plan
An advisor can serve as your dedicated consultant as you manage your plan. As a plan sponsor, you have ultimate responsibility for all decisions you make including those on plan design, the investment selections you offer and employee education and engagement. However, the services of an experienced advisor can help you navigate each step of the way.
As the fiduciary of your plan, some of your most important responsibilities include establishing an appropriate plan structure for your participants. This includes determining what features and investments your plan offers as well as selecting and monitoring service providers. An experienced advisor will have the knowledge to help you understand these responsibilities and can help you avoid mistakes that could expose you to liability.
- Plan design and objectives
Retirement plans are inherently complex and have become more so in recent years. An advisor can help keep you up-to-date on changing legislation and review plan structure (e.g., safe harbor, profit-sharing, etc.), eligibility, vesting, matching options, loan provisions and other variables in light of these changes.
- Plan provider selection
Your plan provider, which may be an investment management firm, insurance company, brokerage or other financial firm, offers a range of administrative, recordkeeping and educational services and can also provide the investment options for your plan. An advisor can help you determine if your plan provider offers the features and options that are best-suited for you and your participants.
- Liaison and oversight of service providers
In addition to a plan provider or third-party administrator, your plan may engage legal counsel and other experts. An advisor can serve as an intermediary to help resolve concerns, get answers to your questions and conduct ongoing monitoring to determine if your service providers are performing their duties in a satisfactory and cost-effective manner.
Investment Option Decision-Making
Some of the most challenging decisions for which you are responsible center on investment menu design, including the selection and monitoring of the options you offer to participants. An advisor is equipped to keep you abreast of changing investment types, investment best practices, performance measures and other items that may impact the options you offer to your participants.
- Investment Policy Statement
An Investment Policy Statement (IPS) is the backbone of your investment process that helps maintain procedural prudence and outlines how to select and monitor investment options. An advisor can help you apply best practices when creating, monitoring and updating your IPS so investment decisions align with overall plan objectives.
- Menu selection process
Most plan providers offer broad selections of investment management families and asset classes, but studies have shown it is counterproductive to offer too many choices to participants, who become overwhelmed and unable to make decisions. An advisor can help you establish a rational menu, which may include single asset classes on an á la carte basis, and diversified portfolios, such as target-date funds, that simplify employee decision-making and can serve as default investments.
- Monitoring and review
As a fiduciary, you are held accountable for the periodic review of investment menu options to determine how they are performing relative to the guidelines set forth in your IPS. An advisor has the tools and experience to help you with this analysis and guide you through any necessary menu modifications.
Helping employees understand and make informed decisions about their participation in your retirement plan is not only a fiduciary responsibility, but it is critical in helping them reach their retirement goals. Employee engagement entails publicizing the plan, making sure participants understand their options and developing strategies that maximize participation. An advisor can help you manage this process and determine the right strategy for your plan.
- Education program
Working with your plan provider, a financial professional can assist in distributing information to employees to engage them in the plan and answer investment-related questions. Enrollment meetings and other communications will help participants make decisions on how much to contribute, whether to increase contributions and which investment options are best for their particular situation.
- Ongoing support
An advisor may also conduct periodic re-enrollment meetings to encourage participants to increase deferral percentages, revisit their investment selections and rebalance their portfolios if necessary. An advisor can also offer customized educational meetings for new employees, employees in transition and other individuals in special situations.
Part 2: Identifying the Right Retirement Plan Advisor
The right retirement plan advisor provides a range of essential plan services, so it is important to determine if and how they can meet your needs and requirements. When you are performing a due diligence review, there are three key areas to focus on:
Retirement knowledge and experience
As a plan sponsor, you and your plan are responsible for meeting your employees' needs and fiduciary requirements. It is important that your advisor be experienced in the complexities of retirement regulations, knowledgeable about best practices in investments and employee education and have the ability to help keep you up-to-date on regulatory changes. To make sure you are relying on the experience of an appropriate advisor, consider the following:
- What is their experience with retirement plans?
- With how many plans do they currently work?
- Can they provide references from other plan clients?
Quality of service and resources
Because you have many roles to play, you want an advisor who can take the lead and relieve some of your administrative burden. An advisor should be responsive and helpful in coordinating initiatives and interactions to help the plan run efficiently. To make sure you are partnering with an advisor who can do all of this, consider the following:
- Are your calls returned promptly?
- Are your questions answered fully?
- Do they offer suggestions and new ideas and help keep you up-to-date on changes in regulations?
Fees, service and value
Under new regulations, you are responsible for disclosing all compensation paid to service providers, including those of your advisor. It is important that you understand what the advisor's compensation covers and how it is charged. By considering the following, you can work to determine the appropriateness of their compensation.
- How do they charge for services?
- What services do they provide for the compensation they receive?
- Do they provide a formal service agreement outlining how often each key function will be reviewed?