One of the trends that is transforming the defined
contribution industry—particularly in the ‘Investment Only’ segment of the
market—is the evolving focus away from a “low costs above all” priority and
toward an appreciation of the value and advice that a retirement plan
professional can offer plan sponsors.
Before we discuss the many important ways a retirement plan
professional can assist plan sponsors, it’s crucial to first draw a distinction
between financial professionals for whom retirement plans are a peripheral part
of their business and those financial professionals for whom retirement plans
are their primary—and in many cases—only focus.
Drawing this distinction is necessary because much of the
value that a retirement plan professional can offer a plan sponsor comes from
the deep knowledge of, and experience with:
- plan sponsor needs
- plan participants’ challenges and behaviors
- the laws and regulations governing qualified
retirement plans
- industry trends, and
- new and potential legislation.
The retirement plan professional brings value to plan
sponsors in a number of critical ways, including:
- Guiding the plan sponsor through Employee
Retirement Income Security Act (ERISA) requirements, providing tools such as
checklists, forms, and education modules to help ensure that prudent skill and
care requirements for plan operation are satisfied.
- Assisting with plan design to help a plan
sponsor maintain its qualified status, achieve its plan objectives, and
maximize the impact of its benefit dollars.
- Providing the support necessary to help an
organization meet its fiduciary duties. This support, among other things,
includes providing guidance or assistance in the following areas:
- Formulating an investment policy statement for the plan.
- Selection and monitoring of the plan’s investments and fund
options.
- Educating plan sponsors on their fiduciary responsibilities.
- Assisting with documentation of meetings and discussions.
- Performing an objective evaluation of funds and
other service providers, independent of the investment platform or service
provider.
- Helping plan sponsors reduce plan costs by
negotiating with service providers, finding lower cost investments, and
attracting more assets to the plan to drive costs lower.
- Running comparative analyses of the marketplace
with respect to plan fees, expenses, and revenue sharing to benchmark a plan
relative to other service providers.
- Monitoring the fulfillment of promised services
by a service provider.
- Helping to ensure plan compliance and keeping
company management and relevant committees updated on litigation, legislation,
industry trends, and regulations that may have an impact on the company’s plan
and its fiduciaries.
- Helping to improve participant outcomes through
financial wellness education and guidance (e.g., budgeting and debt
management), retirement and investment planning education, and by boosting
participation and contribution levels through in-person, virtual, and online
enrollment and education initiatives.
- Providing personal, hands-on client servicing to
address any needs or problems that may arise.
A 2019 survey of plan sponsors1 found that more than 93% of
plan sponsors work with an advisor—an all-time high for a study in its 10th
year. The top two reasons for hiring an advisor were (a) to understand how well
the plan is working and how to improve it; and (b) to get help managing the
plan. This underscores the value of such professionals servicing the retirement
plan community.
Moreover, according to research conducted by Each
Enterprise2 – a firm serving the institutional retirement plan market – 75% of
plan sponsors working with an advisor exclusively devoted to retirement plans
rated their advisor “outstanding” for periodic investment reviews and service
provider due diligence. Further, 71% rated their advisor “outstanding” on plan
design recommendations, and 77% said their advisor was “outstanding” for
monitoring the fulfillment of services by their retirement services provider.
With the passage of the Setting Every Community Up for
Retirement Enhancement (SECURE) Act3, the value of retirement plan
professionals will be further validated as they guide plan sponsors through the
new safe harbor for adding annuity features to plans prudently, the new
requirement for furnishing lifetime income disclosures to participants
annually, and how plan sponsors can avoid the higher penalties for failing to
file their required forms and notices in a timely manner.
Retirement planning is not a part-time activity, and we
believe plan sponsors seeking help on their retirement plan should look to work
with a retirement plan professional who is dedicated and focused on helping
plan sponsors holistically with a range of services. Specialized advice from a
retirement plan professional has never been more valuable in our view.
All investments involve risk, including the possible loss of
principal. Certain investments involve greater or unique risks that should be
considered along with the objectives, fees, and expenses before investing.
This material has been distributed for informational
purposes only. It is educational in nature and should not be considered as
investment advice or a recommendation of any particular security, strategy or
investment product.
Views expressed are those of the author stated and do not
reflect views of other managers or the firm overall. Views are current as of
the date of this communication and subject to change. Forecasts, estimates and
certain information contained herein are based upon proprietary research and
are subject to change without notice. Certain information has been obtained
from sources believed to be reliable, but not guaranteed. Please consult a
legal, tax or investment professional in order to determine whether an
investment product or service is appropriate for a particular situation.
BNY Mellon Investment Management is one of the world’s
leading investment management organizations and one of the top U.S. wealth
managers, encompassing BNY Mellon’s affiliated investment management firms,
wealth management organization and global distribution companies. BNY Mellon is
the corporate brand of The Bank of New York Mellon Corporation and may also be
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