Best for Success

Today PLANSPONSOR opens nominations for our Retirement Plan Adviser of the Year awards.

Each year we receive a number of inquiries from advisers and plan sponsors about the awards, and many of these fall into a category I tend to think of as “exploratory”—feelers as to what we are looking for.

At its core, what we hope to acknowledge—and, thus, what we are looking for—hasn’t changed from when we first launched the award in 2005: advisers who make a difference by enhancing the nation’s retirement security, through their support of plan sponsor and plan participant information, support, and education. Since its inception, we’ve focused on advisers who do so through quantifiable measures: increased participation, higher deferral rates, better plan and participant asset allocation, and delivering expanded service and/or better expense management.

A Different World

The world has, of course, undergone much change since we first launched those awards, and advisers now have an expanded array of tools at their disposal to make those results a reality—legislatively sanctioned automatic enrollment, contribution-acceleration designs, qualified default investment alternatives, and a broadly greater emphasis on transparency and disclosure of fees. These steps have been good for our industry, great for participant retirement security and, IMHO, have served to raise the bar for our award at the same time.

So, what will we be looking for this year? Well, there are many attributes that can make for a good adviser, or an adviser that is good for a particular plan. But when it comes to choosing an adviser or adviser team that stands apart from the rest, that not only sets an example, but a standard for the industry, I look for advisers that:

Have established measures and benchmarks for plan success. Those benchmarks should include the measures noted above: participation, deferral rates, asset allocation. If an adviser can’t tell me what those targets are and how your plan stands in relation to those targets, IMHO, they are using the “wrong” benchmarks. I’m also interested in advisers who not only use those as a matter of course in running their business, but who develop them in partnership with their plan sponsor clients—and who regularly and routinely communicate those results.


Fully and freely disclose their compensation. I’m frankly a lot less concerned with how advisers get paid than that their plan sponsor clients know what they are paying for those services.

Work at staying current on trends, regulations, and product offerings. The best advisers read, attend conferences and/or informational webcasts, have attained (and maintained) applicable designations, and commit to a regular course of continuing education during the course of the year. This business is constantly changing; if your adviser is not constantly learning, you are being left behind.

Encourage and inspire their clients. Client referrals have always been a key element in our award, and as the overall quantitative standards rise, the significance of the qualitative element afforded by client references (and award nominations) will almost certainly increase. How often does your adviser talk with you? How often do they visit? How—and how often—do they communicate with you regarding regulatory and legislative changes? Do you feel like they know what’s going on – or are you generally the one to break the news to your adviser?

Are willing to accept fiduciary status with the plans they serve. This is an area our judges have debated vigorously over the years. I’ll admit some great advisers have been blocked from accepting fiduciary status by forces they don’t control. I’m not (yet) saying you have to be willing to accept fiduciary status in order to get my vote, but it’s a factor—and, IMHO, an increasingly important one.

That’s what I’m looking for—and looking forward to acknowledging—this year. If your adviser – or adviser team – is worthy of that recognition, I hope you will take the time to nominate them today!

You can nominate an adviser colleague or associate for PLANSPONSOR’s Retirement Plan Adviser of the Year, or Retirement Plan Adviser Team of the Year at https://www.research.net/s/5XYL2KR

“Fifth” Avenues

The year we began publishing PLANADVISER was a big year in many ways for me – it marked my twentieth wedding anniversary, it was the year my father passed away, the year my eldest went off to college for the first time, and also the year that “catch-up contributions” became an item of more-than-passing interest to me.

In recent weeks, I’ve had occasion to think back on those past five years, and all that has transpired – the Pension Protection Act, QDIAs. the back-and-forth on fiduciary advisers, the first wave (and subsequent flurry) of revenue-sharing lawsuits, the growing emphasis on transparency and disclosure, the growth – and questions about – target-date funds, the “normalization” of a fiduciary role for retirement plan advisers, and more recently, the back-and-forth on an expanded fiduciary definition. Like many of you, I can still recall the tumultuous news of September 2008 – all hitting during our PLANADVISER National Conference that year.

While it’s fun and interesting to look back at what’s gone on the past several years – to imagine what might have been, and perhaps to rue what has, it’s clear that we’ve all come a long way over the past five years - and little question that we have an interesting road ahead as well.


Here are five things I think we can count on for the next five years:

Participant fee disclosure won’t matter.

Let’s face it; most participants don’t do anything with their retirement accounts. Most never realign balances, most don’t ever change the amount they defer, and – thankfully, most leave those accounts alone at times when we’re all worried that they will not. I’m betting, for all the angst about participant fee disclosures, most won’t read them – and even fewer will do anything in response. With luck, by the time they get those disclosures, they won’t feel the need.

Plan sponsor fee disclosure will matter.

It’s no easy thing for a plan sponsor to up and change providers. All other things being equal, most would rather crawl over hot coals than deal with all the additional work (and decisions) attendant with those changes. That said, once fee disclosures become more public, and, shall we say, “systematic” – well, I expect plan sponsors will have a lot of “help” reviewing the information. While I don’t expect a massive surge in provider changes, I think it’s fair to say that a lot of “haggling” will take place.

Advisers that work with ERISA plans will need to be ERISA fiduciaries.

Arguably it’s already tough to win a piece of ERISA business against an adviser willing to claim fiduciary status. But I think we’ve already passed the tipping point, and if market forces weren’t sufficiently persuasive, the regulators now seem determined to press the issue.

We’ll come to regret our complacency about target-date fund designs.

In the aftermath of the 2008 financial crisis, much was made of the variations in target-date glide paths, the disparity in assumptions that resulted in wildly different results for those just a couple of years away from retirement. Since then, the markets have repaired much of that damage, but little appears to have been done in terms of rethinking the assumptions and structures of those funds. More troubling is how little movement has since been apparent among plans that felt burned, but ostensibly were ignorant (willfully or otherwise) of those differences in 2008.

Retirement income will (still) be the big thing we all say needs to be solved that (still) isn’t.

Mark Twain once famously remarked that “everyone talks about the weather, but nobody does anything about it.” Well, you can’t say that people haven’t been doing things about retirement income. In fact, there have been some pretty remarkable developments over the past couple of years. The Obama Administration has certainly tried to jumpstart the discussion, if not adoption of such designs. A truly comprehensive safe harbor could be a game-changer here – but I’m guessing that there won’t be a target-date “simple” solution here. Not that there should be …

- Nevin E. Adams, JD

“Free” Ride?

I was late to the NetFlix game—switching over only when my local Blockbuster closed its doors. Honestly, I was more than a little skeptical about paying to rent movies while spending most of the month waiting for the mail carrier to shuffle things back and forth.

Those fears (along with concerns drawn from early stories about people being sent movies at the bottom of their list, rather than the newer, hotter releases) have turned out to be mostly a non-issue. More recently, I “discovered” the firm’s online library of free movies—and while I would say that most of them SHOULD be free (some you should be paid to sit through), I have enjoyed having that “extra” feature. Sure, there were times when the Internet delivery speed wasn’t optimal, or when a movie would time out a third of the way through, but heck, it was free.

Until, of course, NetFlix announced a change in pricing policy, a change that would cut the cost of the traditional movie rental service, but that would charge—and charge just as much—for the online movie library. Overnight transforming what had been a nice, free, additional service into—well, a pricey, sometimes erratic, delivery system of older, “b” movies. In short order, my willingness to calmly accept certain service “glitches” associated with a “free” service—well, let’s just say I have completely different expectations when I have to pay for it.


The retirement plan industry has long wondered—and worried—what participants would do if they knew how much they were paying for their 401(k)s. Despite the fact that most of those fees have long been disclosed in fund prospectuses, we’re generally inclined to think that most participants haven’t actually read those disclosures—and those who have probably didn’t understand them. That’s all supposed to change—or at least begin changing—with the participant-level fee disclosures slated to take hold next year.

Personally—and I know I’ll get some pushback on this—I’m disinclined to think it will make a big difference. After all, if there’s one thing that participants have demonstrated over the years it’s a strong and consistent propensity to gloss over (if not glaze over) big, complicated, legalistic disclosures. It doesn’t help that retirement plan fee calculations have become complicated structures, imbedded inside the net asset value of mutual funds, with revenue-sharing offsets of varying amounts (see “IMHO: Out of Proportion”), and most expressed in participant-unfriendly terms like “basis points,” or worse—“bips.”

I’m not optimistic about the new regulated disclosures—too much data, and not enough information, IMHO. That said, there are some new disclosures coming to market from the provider community ahead of those regulations that, IMHO, might actually help participants see—and understand—what they’re paying.

Of course, for most, the concern is not that participants will now know how much they are paying—but that some may, perhaps for the first time, realize that they ARE paying.1

—Nevin E. Adams, JD


1 Consider that a survey published earlier this year by AARP indicated that only a quarter of 401(k) participants realize they are paying fees (see “Most 401(k) Participants Not Aware of Fees They Pay”).

"Much" Ado

There were three big disclosure announcements last week. The first two were the pushback of the effective date for 408(b)(2) fee disclosures to April 1, 2012, from the previously announced effective date of January 1 of that year. In the same announcement, the Department of Labor also delayed the compliance date for the participant level fee disclosure regulation for most plans to May 31, 2012 (a month ago, the DoL had said that information would have to be made available no later than April 30)—which, from a practical standpoint, means that the information must be provided by August 14, 2012 (45 days after the end of the second quarter in which the initial disclosure is required)(see “Borzi Chats about Upcoming Definition of Fiduciary Rule”).

Those delays are, doubtless, of some relief to the provider community. They’re not pushed back far enough to significantly delay the beneficial impact of the disclosures (though this is not the first time they have been pushed back), but I’m sure even the best-prepared will appreciate a little extra breathing room.

But the more significant “announcement,” to my ears anyway, came on Friday, when Assistant Secretary of Labor Phyllis Borzi noted in an Employee Benefits Security Administration (EBSA) Web chat that the DoL was “considering, as part of the pension benefit statement regulatory initiative, requiring that pension benefit statements for defined contribution plans express the participant's ‘total accrued benefit’ in the form of a lump sum account balance and in the form of a lifetime income stream”


It’s not a new notion, of course. In fact, legislation has been introduced in Congress (twice) that would basically do the same thing (see “Retirement Income Disclosure Bill Makes a Comeback”). And while such a notion is fraught with potential problems (the assumptions, the presentation, and the caveats attendant with that presentation), I think it could be a real eye-opener for participants and plan sponsors alike. In fact, IMHO, it’s the kind of thing that could really make a difference in how people look at their retirement savings accounts.

Make no mistake, it’s going to be complicated. You can’t project retirement income from a couple of pieces of data (ostensibly current age, salary, and current 401(k) balance) without making several key assumptions. Moreover, I can’t imagine that it will be deemed sufficient to simply provide that number and, in a sentence or two, outline those assumptions. Rather, it’s entirely likely that the volume of disclosures accompanying the new piece of information will serve to obscure the impact.

Ultimately, it’s hard to know how good those disclosures will be and how much impact they will have—but, IMHO, if we expect participants to save enough, it seems well past time that we helped them know just how much “enough” is.

—Nevin E. Adams, JD

All for One?

The underlying theme of last week’s PLANSPONSOR National Conference was “measuring up,” a reference not only to the need to measure the performance and outputs of a retirement plan’s designs, but also to the opportunity to increase and enhance it in the process.

Of late, fees are very much on everyone’s mind, as we all prepare for a new series of plan, and ultimately, participant, disclosures. Just ahead of those disclosures, the industry has launched a new generation of plan fee benchmarking services. Each looks at different things, each has its own set of weightings and assumptions, and each draws from a different source.

But for my money, here are 10 things you should know about any service that purports to help you benchmark your plan:

What is the source of the database that serves as a point of comparison?

Is the database itself large enough to be relevant? Does it include relevant points of comparison with your program in terms of plan size, industry, and/or geographic location?

How old is the data on which comparisons are made?

Is the data on which comparisons are made accurate?


Are the comparisons valid? Do they offer an apples-to-apples comparison?

What assumptions are incorporated in the results?

How are the results of the comparison scored?

What are the credentials of the firm/principals behind the service and/or methodology?

Is the benchmark itself relevant to your needs? Does the comparison help you improve your program?

Is the fee paid for the benchmarking service reasonable, and in the best interests of participants?

There are, admittedly, any number of measures of success for a retirement plan—and while some may be “better” than others, and some surely easier to establish, in my experience, the mere process of measuring brings benefits.

That said, there was a moment at last week’s conference where one of our speakers asked a telling question: not if attendees benchmarked their programs (a surprising number were doing so), nor if they were benchmarking against a variety of criteria (most of those in attendance had moved well beyond the standard of “participation rate” as a metric).

No, the question that gave me pause—as well as a good number of the attendees—was, If the individual members of your retirement plan committee were asked “What do you benchmark your plan against?” what would they say?

Because, if you don’t agree on that answer, the rest of the questions may not matter.

—Nevin E. Adams, JD

You may find useful the cover story of the June issue of PLANSPONSOR, which deals with this new generation of fee benchmarking services, HERE

Out of Proportion

Without question the retirement plan industry has prospered from the long-standing practice of relying heavily – and in some situations, completely - on asset-based fees.

Now, you can certainly argue that that has resulted in plans paying for services they would not otherwise have engaged, and that it has, in some cases, led to plans paying more than they might if they had been more cognizant of the dollars expended. Indeed, one can argue that the imbedding of those fees inside the fund structure has made it easy, perhaps too easy, for the industry to collect its tolls without drawing the kind of scrutiny they were entitled to.

On the other hand, that structure has made it easier for the industry to provide a broad-based level of sophisticated services to plans of all sizes, and has doubtless made it possible for plans to contemplate hiring an adviser that, regardless of the need and/or benefit, would otherwise have been discouraged by an explicit charge for those services.


That said, there are some issues attendant with the current asset-based fee structure that, IMHO, bear discussion:

Asset-based fees go up – pretty much all the time.

For most of the existence of the 401(k), the markets have been fairly good, and as they say, a rising tide lifts all boats. In this particular case, rising markets have also meant rising fees. Proportionately rising fees, of course, but rising fees nonetheless. That, in turn, has meant that those who make their living off asset-based fees have seen some pretty nice pay increases over time – without necessarily having to do anything more or different to “earn” them. Even in bad markets, the steady flow of contributions has cushioned the blow that might otherwise have tamped them down.

Asset-based fees go down when the work – and risks – go up.

One of the great ironies of asset-based fees is that they do sometimes go down, and at the most “inconvenient” times. One need look back only as far as the fourth quarter of 2008 to remember a precipitous decline in asset values – and asset-value-based fees - at the very same time that many noted a steep increase in the “care and feeding” of plan sponsors and participants who had been shaken by what was happening to their retirement plans (not to mention their plans for retirement). Of course, it would probably be viewed as unseemly (at best) to raise your fees during such times – but that is when your work, and your risks, are generally rising.

The bigger your balance, the more you pay.

Admittedly, when you’re talking about fees based on assets, it makes sense that the more assets you have, the more fees you pay. Perhaps that makes a modicum of sense when you are talking about things like investment management (even then, it seems to me that those with large balances are carrying an ironically disproportionate, albeit proportionate amount of the fees). As “industry insiders”, we all know this – indeed, some go so far as to see a more high-minded result; the “rich” underwriting the costs of the less rich, if you will.

On the other hand, it’s not just the rich that have larger balances – frequently those are the balances of lower-income workers who have, nonetheless, been long-time diligent savers. So, said another way, it’s older, longer-tenured workers are underwriting the costs of the folks who have just joined the plan.

Different funds “share” differently

We all know that different types (and brands) of mutual funds charge different fees. What is less obvious to many plan sponsors is that different types (and brands) of mutual funds provide different amounts of revenue sharing. It is not atypical for a plan sponsor to sit down with a recordkeeper, to figure out what the recordkeeping charges will be, to determine what the aggregate amount of the revenue-sharing rebates will be, and then to determine how to manage the difference. But if some funds provide higher levels of revenue-sharing, then the participants investing in those funds are, effectively, shouldering a larger proportion of the administrative costs of the plan.

There are administrative ways to “level” these fee allocations, but many plan sponsors aren’t even aware that this has crept in.

Out of “sight” IS out of mind.

To me the biggest issue with those “imbedded” asset-based fees is that you never really see how much actual money you’re paying. Oh, it’s not like the fees aren’t “disclosed”, and it’s not as though it’s rocket science to figure it out, at least at a high level. But most plan sponsors are lured into what I consider to be the faux comparisons of basis points, rather than actually stopping to figure out what 100 basis points times the assets in a particular fund actually adds up to – and who gets how much for what.


The reality of our world is that a large, and growing number, of retirement plan advisers are already “fee for service”, and the fee disclosure regulations are widely seen as accelerating that trend.

That said, our industry has gotten comfortable, some even complacent, with a fee system structure that tends to raise, not lower, fees over time, a system that apportions fees on a basis that often has little to do with the costs of providing the services it supports, and one that tends to obscure the real costs of the services they ostensibly underwrite.

The current structure may have been “convenient” – but just because it’s “proportionate”, doesn’t mean it’s always fair.

- Nevin E. Adams, JD

Service Charges

As Valentine’s Day looms, you have perhaps seen those increasingly ubiquitous advertisements for a certain online florist.

Now, I’ve used that particular service on many an occasion over the past several years; they are not only convenient, they deliver a quality product, and on time (yes, some “assembly” is required). In sum, I’ve used them before and will doubtless use them again.

That said, if you’ve been lured to their Web site by their ads touting a dozen roses for $19.99—well, let’s just say you could be in for a surprise. See, that advertised price doesn’t include a vase (well, not a pretty one, anyway), the delivery charge (which, depending on when you want it delivered, adds another 50%, or more, to the price), not to mention the standard “care & handling” charge of $3 (regardless of when you want it delivered). A guaranteed morning delivery on Valentine’s Day is another $15. Oh, and if you’ve procrastinated until the last week or so, you’ll find an additional $9.99 charge for “guaranteed Valentine’s Day delivery.” In sum, depending on when you get around to ordering those $20 roses, you could easily wind up spending three or four times that amount (but, hey—what’s it worth to you to stay in your sweetheart’s good graces?). And, most of that disclosure doesn’t happen until the screen right before you place your order.1

Of late, I have been talking about 2011 as “the year of disclosure.” It’s the year when I think most plan sponsors will begin really looking at those new 5500 disclosures, perhaps alongside those newly minted 408(b)2 disclosures (or would have until Friday’s announcement from the Labor Department that the deadline was being pushed back six months (see “EBSA Sets New 408(b)(2) Deadline for January 2012”).
Additionally, the issue of participant fee disclosure is back on the table, an outcome that will surely heighten the focus of plan sponsors on the issue.

The question, of course, is what will plan sponsors DO in response? For years now, there has been an undercurrent of thought that, once they saw what they were paying (and to whom), plan sponsors would rise up and demand change and/or a change in providers. Advisers would lead this charge, armed with these expanded disclosures, and the federal government would even play a role by not only mandating these disclosures, but providing plan fiduciaries with some “sticks” to spur compliance by reluctant providers (personally, I’d just find some new providers, but…). Indeed, all of this is being brought to bear at the same time, and the prospects for expanded, if not enhanced, disclosures seem bright.

Interestingly enough, these disclosures don’t really change the obligations or responsibility of plan fiduciaries to ensure that the fees paid and services rendered to the plan are reasonable. Indeed, most of the burden for disclosure falls on those who provide services to the plan, not the plan sponsor. That said, once the plan sponsor/fiduciary is apprised of such things in black and white (not to mention the Labor Department via the Form 5500), IMHO, it will be a lot harder to profess ignorance of such things.

Ultimately, I think those who provide services to these plans will be more thoughtful about the services they offer and what (and how) they charge for those services, and surely some will decide to no longer offer those services in this market and/or at those prices. Surely it will be easier—at least eventually—for advisers to help plan sponsors make apples-to-apples comparisons of services and costs, to make a more thoughtful—and prudent—determination.

That doesn’t mean that plan sponsors will act on that information. But then, if the process of disclosure has the kind of antiseptic effect we might hope it could have on the business of fees charged, then it’s entirely possible they won’t have to.

—Nevin E. Adams, JD

1 However startled one might be by the additional service charges on that online flower order, odds are your local florist charges about the same thing for the total package (with fewer options), perhaps without detailing the “extras.”

Paper “Trail”

Last week, the Department of Labor reissued its proposed regulation on participant fee disclosure.
Those familiar with the last proposal (put out by the prior Administration—see “EBSA Finishes Regulatory Package with Participant Disclosure Proposal”) will doubtless find this one to be a modest improvement (see “EBSA Releases Final 401(k) Fee Disclosure Rule”). Aside from the passage of time, this version incorporates additional input from the retirement plan community, financial services regulators, and even participant focus groups—most of it good, and all of it interesting.1

The rule itself is worth a read for, IMHO, it offers valuable insights not only into the suggestions made, but into the Labor Department’s reaction and response to those comments. As always, the devil lies in the final details, but one senses a strong interest in balancing the desire to give participants more information to make better decisions with the practical realities attendant in providing transparency and consistency of disclosure in an industry whose fee structure has become increasingly obtuse and intertwined.

That said, and while this is a marked improvement from the current state of affairs, IMHO, this regulation will still leave us a long way from producing what I think will actually show participants what they are paying for these retirement accounts.


Sure, they’ll get more frequent information on their investments, and sure, there will be more (and probably better) comparative information about those investments, both fees and performance. Yes, they will see fees expressed both as a percentage and as a dollar amount per $1,000 invested, and yes, they will get more information on account restrictions, annuity provisions, and revenue-sharing than many have probably ever received previously. And yet, for all this extra data that will be produced, provided, and distributed, I can’t quite shake the image of a participant’s eyes glazing over as they desperately try to make sense of what they have been given.

Of course, it’s possible that many won’t bother reading it at all, though a large part of the financial justification for these regulations is how much time the disclosures’ availability will spare participants searching for information about these investments. In fact, to my eye, perhaps one of the most significant revisions from the prior regulations was a reset in the estimation of just how many participants are expected to benefit from these reams of paper. The prior proposed regulation estimated that 29% of participants in these programs would realize some kind of time-savings, but the Labor Department, responding to a suggestion from a commentator, has upped that—to an eye-popping 70%-76%!2

Now, that determination isn’t, IMHO, essential to the importance of this effort. Personally, the 29% figure is much more in line with my experience, mostly because what I see, time and again, is that the more paper we sling at participants, the less attention they pay. And, make no mistake, with this new proposal, we will be slinging a lot more paper at participants, and more frequently. Despite the effort to alleviate the complexity of basis points and revenue-sharing, it’s hard to shake the sense that this well-intentioned effort will simply overwhelm participants, while at the same time placing a large and growing burden on the backs of those who must provide, administer, and explain it.

It’s clear to me that the information is needed, and as I read the proposal, it’s clear to me that the regulators have made a good-faith effort to strike a balance in providing it.

That said, I doubt very much that it will make much difference in participant behavior, nor am I optimistic that it will actually enlighten many, certainly not the three of four cited in the Labor Department’s projections. This is not a shortcoming of the DoL’s attempt here—frankly, in view of the tangled web that has become 401(k) retirement fee calculations, I think they are to be lauded for their vigorous and balanced efforts.

However, what participants really want and, IMHO, what they need to really understand what is going on here is to have that single figure on the statement—even if produced only once a year—that tells them what their retirement plan costs.

This new regulation may hasten that day’s arrival. But until it comes, I fear we may be doing little more than papering over the real problems.

—Nevin E. Adams, JD

1 There is another interesting inclusion in this proposal—one that has to do with disclosures, but perhaps not participant fee disclosures, per se. With this proposal, which merges the 404(c) disclosure regulations with those of non-404(c) plans, the Labor Department added a provision to the 404(c) regulation, stating plainly what those of us in the industry have long understood; that, even where ERISA 404(c) protection applies, it does not shield fiduciaries from the duty to prudently select and monitor investments. However, this statement was only referenced in the preamble to those regulations rather than in the body—and thus, some courts had seen fit to disregard its implication in a series of revenue-sharing suit dismissals (see “IMHO: Second Opinions"). That, of course, is fodder for another day.

2 The recommendation was based on a finding from the Employee Benefit Research Institute’s (EBRI) 2007 Retirement Confidence Survey, which indicated that 73% (plus or minus 3%) of workers saving for retirement used written materials received at work as a source of information when making retirement savings and investment decisions.

The regulation is online HERE

A fact sheet summary is online HERE

A model of the information chart is online HERE