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Applying Fiduciary Leadership

Notes from the PLANSPONSOR National Conference

Scott Matheson, CFA, CPA
Senior Director | CAPTRUST Defined Contribution Practice Leader

Dan DiGiacomo
Vice President | CAPTRUST Financial Advisor

Several CAPTRUST professionals attended this past June’s PLANSPONSOR National Conference in Chicago, themed “Designing Retirement Plans That Work: Getting from Where You Are to Where You Want to Be.” For those unable to attend this annual event for plan sponsors, we wanted to share highlights from this year’s sessions to keep you abreast of what the industry and, perhaps more importantly, your plan sponsor peers are discussing.

As the conference title suggests, topics focused on creating and managing outcome-oriented retirement plans. TransAmerica Retirement President of Pension Sales and Distribution Stig Nybo’s keynote titled “Will You (b)e O(k)?” challenged attendees not only to acknowledge America’s retirement readiness problem but also to accept the retirement industry’s responsibility to change behavior and drive better outcomes. Nybo’s presentation focused on the need to transform people’s context in order to transform their behavior. He insisted change was needed if defined contribution plans are going to work as Americans’ primary retirement savings vehicle. His comments successfully set the tone that outcomes matter for the rest of the conference. Similar to Nybo, we insist successful defined contribution plans are those with high participation levels, adequate deferral rates, and well-invested participants.

As we listened and participated in this year’s conference sessions (CAPTRUST subject matter experts presented in six sessions), we couldn’t help but note how many components of our recently introduced Fiduciary Leadership program were represented by speakers. Yet, missing was the integration of each of the pillars; in other words, plan design is great and helpful but must be combined with the right investment menu and education or advice program to be truly successful. And, of course, a sound fiduciary process and well-priced and managed provider relationship must persist for true leadership status. 

On page three we highlight some of the components of the five pillars noted this June in Chicago and look forward to discussing how the Fiduciary Leadership framework can be integrated into your plan.

Plan Design

Plan design is the first Fiduciary Leadership pillar and one of the most influential tools driving plan outcomes, as it can be impactful in getting participants in the plan and saving enough. The most noteworthy session at the conference on the topic was titled “Automating Success.” The presenters noted that plan sponsors are seeing meaningful increases in participation and deferral rates in their plans as auto-feature utilization continues to take root. According to the Plan Sponsor Council of America’s (PSCA’s) 55th annual survey, 49 percent of respondents used automatic enrollment as of plan year 2011 versus only 8 percent in plan year 2004. As plan sponsors experience successful changes in participant behavior through these programs, they quickly entertain additional plan design changes like automatic increases in deferral rates. Some plan sponsors are going even further, opting to reenroll existing participants (or eligible employees) who were hired before automatic enrollment features were implemented. The panelists believe that using automatic features will increase in the future and positively affect participant outcomes. We could not agree more.

Participant Engagement

Engaging participants continues to challenge the plan sponsor community and the efficacy of participant-directed retirement plans. The session “Participant Behavior and What It Means to Maximize It” explored participant retirement plan engagement levels and what can be done to improve them. Similar to our Fiduciary Leadership message, the session suggested that using averages can lead to the wrong conclusions and instead encouraged attendees to focus on participant personas as a way to develop tailored retirement messages more likely to hit their mark.

Additional sessions focused on engaging participants included “Metric Taking” and “Financial Wellness at the Workplace.” The dialogue is evolving between companies and their participants; today’s successful strategies reach and impact multiple, specific employee cohorts rather than solving for the average participant (who rarely exists). Gone are the days of general education presentations, with a movement toward custom integrated campaigns driven by social networking, mobile device apps, and retirement income calculators. Our view is that — while it is appealing to sign on with the new regime of “auto everything”— employees engaged in their savings and investing decisions benefit from targeted outreach and advice. As evidence, we know that when CAPTRUST is engaged to provide one-on-one participant advice, participants take action following an advice session more than 50 percent of the time. 

Investment Menu

As is often the case, the investment menu receives the lion share of time at industry events, and this conference was no exception. The four most discussed investment topics this year included target date funds, stable value, fees, and alternative investment options. 

Per the 55th annual Plan Sponsor Council of America’s Survey of 401(k) and Profit Sharing Plans, 69 percent of defined contribution plans in the United States now offer target date funds, with an increasing majority using them as a qualified default investment alternative (QDIA). Following the growth of target date funds, and this year’s Department of Labor Tips for ERISA Plan Fiduciaries release, evaluating these programs was top of mind for many at the conference. Some of the most well-attended sessions were “Target Practices: Are TDFs on Target?” and “Build or Buy,” a session on the pros and cons of custom target date funds.

With interest rates hovering near historic lows and a consensus building that the next movement in rate levels is higher, plan sponsors are increasingly concerned about the fixed income and stable value options in their plans. The session “Stable as It Goes” featured three panelists from the industry discussing the differences and attributes of stable value products, considerations for the asset class, and benchmarking tips.

Fees were once again a hot topic at this year’s conference. Fee fairness or fee leveling, as it relates to the equity of revenue sharing that is common in defined contribution plan lineups, remain a focal point. Additionally, meaningful debate ensued over the use of active versus passive management in defined contribution plan lineups—the case for passive temporarily bolstered by the difficulties faced by active managers over the past four years. 

Finally, regarding investment menu construction, “Thinking Outside the Box” explored the latest in investment alternatives and asset allocation tools and funds. Speaking of nontraditional investment offerings, presenters on the “Inside or Out” panel explored the pros and cons of retirement income solutions as an option inside a defined contribution plan versus a rollover solution.

Fiduciary Process Management

For a fiduciary leader, fiduciary process management is about more than simply having and following a prudent process; it entails managing your retirement plan as if it were a chess game, thinking two to three moves ahead. Sessions on topics ranging from “Fiduciary Fundamentals: Best Practices to Stay Out of Trouble” to a keynote titled “401(k)s Under Attack” outlined emerging trends in plan management and procedural prudence that plan sponsors might want to be aware of.

On the legislative front, presenters expressed concerns that the retirement industry finds itself squarely in the crosshairs of lawmakers as they seek politically palatable ways to lessen the budget deficit. Many proposals have already found their way onto the floor of the U.S. Congress, and panelists expect to hear more by year’s end. Beyond that, experts anticipate continued regulatory focus on fee transparency and disclosure for projected participant income streams. The updated fiduciary definition remains a wildcard, with resolution expected later in 2013.

Vendor Management

Vendor management was woven through many of the sessions at this year’s conference, with particular focus on the aftermath of fee disclosure. In the sessions “After Fee Disclosure: Negotiating a Better Deal” and “Fees: What Is Reasonable and What Is Required” panelists consistently advised sponsors to follow a routine and scheduled methodology to evaluate service providers paid by plan assets. Part of this process includes interviewing vendors to appropriately document fees and services provided. Leveraging the scale and resources of your providers as a way to maximize results was a vendor management opportunity highlighted in several sessions.

“Time for a Change” featured a panel discussion on what to do if you have issues with your current provider, focusing on techniques to fix your current relationship and conduct a provider search. Panelists suggested such strategies as establishing an annual calendar of events, requesting changes to your relationship management team, and leveraging third-party consulting relationships as ways to improve a strained provider relationship.

Until Next Year

As we strive for enhanced participant outcomes, we continue our focus on getting employees in the plan, getting them saving enough, and getting them invested well. Success across all three of these facets drives successful defined contribution plans and retirement-ready participants. At the conference, during the session titled “Creating a Successful Retirement Plan,” responses from the audience of over 200 plan sponsors provided some bleak statistics including:

82 percent of plan sponsor respondents have no definition of success for their plans

50 percent have no written goal for their plans

86 percent do not track “retirement readiness”

Participant outcomes will only improve if we work together as plan sponsors and advisors to define plan goals, implement processes to affect positive change, and measure our progress. So until next year’s conference we’ll be working to further educate our clients on the tenets of Fiduciary Leadership and driving participant outcomes. We look forward to discussing any and all of these topics with you.