Expert Opinions

I learned a long time ago that when it comes to things like automobile maintenance, home repair, or gardening, I’m better off hiring an expert. Now, I have friends who derive great pleasure from things like “puttering around” in the backyard, who relish the accomplishment of laying down their own carpet or wallpapering a bathroom, who derive great satisfaction from installing their own car stereo or home entertainment center. But as for me, I’m happy to support our nation’s economy by paying someone who actually knows how to do such things. It’s not that I CAN’T do those things, mind you—it’s just that they take time I don’t have to do things I’m not good at for a final result with which I am never completely satisfied.

And, if I’m honest, because I don’t like those tasks, I put off doing them—as long as humanly possible.


One of the most common information requests I get from advisers is help in proving to sceptical plan sponsors that they should hire an adviser. While I don’t always know the particulars, the vast majority of these situations don’t arise where an adviser is already involved. Rather, these tend to be situations in which the plan sponsor has not previously hired an adviser and is questioning why he or she needs to undertake that additional expense to do something they (still) feel perfectly capable of doing themselves.

In truth, by the time you take into account the types of programs many providers now make available, with screened investment menus, pre-packaged investment policy statements, automatic enrollment and contribution acceleration campaigns, not to mention an expanding array of qualified default investment alternative (QDIA) choices and materials that tout the support of a large, sophisticated financial institution, you can hardly fault a plan sponsor for wondering why he or she needs an adviser.

To me, the reason is simple: because, while a plan sponsor probably can fulfill his/her fiduciary duties without the assistance of an independent financial adviser, IMHO, left to their own devices, they are, quite simply, less likely to do so. They are more likely (perhaps much more likely) to be beholden to a limited investment menu and “standard” fee structures, less likely to have regular and productive investment committee meetings, less likely to renegotiate their current arrangements on a regular basis, less likely to undertake needed change, and far less likely to exercise the discipline of a consistent process in doing so. Like those “distasteful” household chores, even among the most committed plan sponsors, these complicated decisions tend to drift to the back burner of life.

Hiring an adviser is no panacea for a plan sponsor who is not willing to own up to its fiduciary obligations—but, with the right adviser, that decision can go a long way toward helping ensure that those fiduciary obligations are met.

—Nevin E. Adams, JD

Mixed Messages

We had wrapped up a very successful half-day adviser event ahead of our annual Awards for Excellence dinner last week. As we closed up the session, a co-worker of mine commented to me as an aside, “Nobody ever told me I needed to be saving 12% before.”

Now, this co-worker has nothing to do with our magazines, or the content that fills our Web sites and newsletters. He just happens to work at a company that, among other things, publishes information about retirement plans. He’s a participant in our benefit plans, of course—and so he has probably been exposed to all the same types of education and savings materials as anyone (perhaps more). He’s a smart guy (he’s pursuing his MBA at night), tech-savvy, and he pays attention. And yet, it wasn’t till he was effectively sitting there as a fly on the wall in a room full of the nation’s best retirement plan advisers that he overheard someone put forth a specific savings-target figure.

Now, like any good plan sponsor, I can explain that. I don’t know his individual financial circumstances (I’d have to “work” even to find out how much he’s saving at present), have no idea when he plans to retire, and can’t possibly guess at the viability of Social Security or other resources at that date. He may marry “well,” he may have a rich uncle—heck, he might even win the Lottery. I can tell you that his employer offers a solid 401(k) plan, with a robust investment menu (reviewed on a regular basis with our financial adviser), a generous match, access to both managed accounts and target-date funds, and the opportunity for him to sit down with a financial adviser (paid for by his employer, I might add) or get a consult via the phone, as well as through an assortment of Web-based tools. Looking over the plan’s structure, administration, and fees, it’s hard not to feel that (in the words of the Lone Ranger), “Our work here is done.”


Except, of course, it obviously isn’t.

Now, I don’t know that 12% is the right answer in his individual case. For all I know, that’s still not going to be “enough”—or, based on the combined results of the aforementioned individual circumstances yet to be discerned, it might be way too much. Obviously, there are many logistical impediments to us divining with precision what the “right” amount is for every individual situation (including our own).

That said, IMHO, any number of plan design features convey a different message to participants. A significant number of plans still don’t provide for an automatic (or even immediate) enrollment. Those who do generally default employees into these programs at a mere 3% of pay, which, in most plans, isn’t even enough to qualify for the full match. Many plans match those deferrals only up to 6% (or less), auto-accelerate at just 1% increments, and—if we’re rigidly adhering to the outline provided in the Pension Protection Act—probably cap those automatically accelerated deferrals at 10% of pay.

We all know that the motivations for those plan designs are nearly as varied as the plans that employ them: They represent the plan sponsor’s sense of a competitive benefit structure, they match the expectations of their current workforce, or perhaps they are simply what the employer can afford at any particular time. Yet, we all see evidence every day that participants read into these structures a kind of “code” that these are the “right” answers to provide them with a financially secure retirement, rather than representing decisions made for reasons that, while generally sound, are completely unrelated to ensuring individual retirement security.

We’ve long held off giving people a specific target for savings, for a host of real and legitimate reasons. I wonder if the time hasn’t come to put a target out there for participants—one that might not be precisely the “right” number for every individual situation, but one that will give them something to aim for, rather than continue to duck the issue and hope for the best.

It’s a message that I think participants are ready for—and there’s no time like the present.

—Nevin E. Adams, JD

Making a List

Believe it or not, PLANADVISER Magazine is five years old this year.

As such, we wanted to commemorate our fifth anniversary by recognizing as “legends” five individuals who had made a “significant personal impact to the retirement plan industry and the advisers who support it”.

Now, perhaps you think that would be easy—but I can promise you it’s harder than it looks. And over the past several weeks we have gone through our list—moving some off, bringing others on, and “sleeping on it” more nights than you might think.

First off, we limited the list to five individuals (for five years), and we also tried to focus in on the past five years. Limiting the list to five was hard enough (certainly once we got started), but trying to focus in on the period since we launched the magazine created an even more daunting task. Sure, it was “only” five years ago, but it’s amazing how much has happened during that time. That was the year the Pension Protection Act was signed into law, after all, not to mention the year that the first wave of revenue-sharing lawsuits was filed, and the year that the Securities and Exchange Commission (SEC), responding in the aftermath of the mutual fund trading scandal, introduced rule 22c-2. In fact, the cover story of the first issue of PLANADVISER was titled simply, “Now What?”.

When it came to compiling that list, however, while some names were, IMHO, obvious,
some were perhaps “too” obvious. There are those who have had an impact, albeit a controversial one, while others have arguably had an impact, but one that is softer, quieter, or perhaps simply not as pervasive as others.

The discipline of a finite list forces you to make tough choices, but it also inevitably leaves you wanting to create a list that is longer, and perhaps more inclusive, if only to give full recognition to the many professionals who have had—and continue to have—that “significant personal impact.” That said, we have chosen five individuals.

They come up in conversation with advisers all the time, and for good reason.
They are people we have watched and are watching—and people who bear watching in the years to come.

They are, quite simply, legends—and on Tuesday we’ll “introduce” them to you.

—Nevin E. Adams, JD

The PLANADVISER “legends” will be featured in the fifth anniversary issue of PLANADVISER and will be honored at our annual Awards for Excellence celebration in New York City on March 24. At that event, along with sister publication PLANSPONSOR, we will also be honoring our Retirement Plan Advisers and Adviser Teams of the Year, as well as our Plan Sponsors of the Year, as well as other retirement industry luminaries.

“Different” Strokes

Having been born in the Midwest, lived a quarter of my life in the South, and now another sixth in the Northeast, I can tell you—people are different. However, having worked for huge firms and considerably smaller ones, I can also tell you that, when people come together in groups, they are not as different as you might think (or hope, as the case may be).

There is a “common wisdom” in our business that suggests that all plan sponsors are, more or less, alike; that large plans are the inevitable early adopters of trends that, sooner or later, trickle down to plans of all sizes. Consequently, those who make their living trying to discern trends and patterns frequently focus on the behaviors in evidence at larger programs—figuring that, in three years or so, those same characteristics will emerge across the spectrum.

There’s some logic to that perspective, IMHO. Plan fiduciaries frequently draw comfort and solace from the experience of others, and smaller programs can hardly be faulted for adopting plan designs and approaches that have been “vetted” by programs with more copious resources. Moreover, providers frequently introduce innovations with price tags that initially discourage smaller-program adoption (at least until later iterations are included as part of the “package”).

That said, I have always found it dangerously simplistic to assume that small plans will, inevitably, follow along eventually in the footsteps of their larger cousins.

"Less" Likely

Consider that smaller programs—let’s use $5 million in assets and less (though some would carve even that in half)—are significantly less likely to have adopted automatic enrollment than those with more than $200 million; in PLANSPONSOR’s DC survey, only about one in five small plans had done so, compared with more than half of larger plans. Now, a goodly number of those smaller plans already had safe harbor designs in place, so had no “need” of automatic enrollment. In fact, one could argue that the safe harbor design is a kind of automatic enrollment. Smaller programs were also much less likely to have a contribution acceleration design in place (just 8.7% compared with about a third of larger programs).

PLANSPONSOR’s Annual DC Survey, which captures the perspectives of some 6,000 plans, found that smaller programs were more likely to make participants wait to vest in employer contributions, and only half as likely to have embraced immediate vesting—differences that admittedly might be predicated on economic considerations.

Only about half of smaller programs had an investment policy statement (IPS) in place, compared with nearly nine of 10 among larger programs. Perhaps not surprisingly, smaller plans reviewed their plan investments much less frequently (49% said annually, the most common response, while more than half of larger plans did so quarterly). They were also less likely to review fees regularly—and much more likely to “never” review them (one in 10).

Consider also that smaller programs were less likely to have adopted a target-date (TDF) solution as a default (28.6% versus roughly two-thirds among larger plans); though, even among smaller programs, target-dates were the predominant default fund choice. They were, however, more likely to be unsure that TDFs were the “best” QDIA option (44%), and more likely to doubt that their recordkeeper was offering the “most appropriate” TDF option.

"More" So

Investment performance was significantly more important to smaller plans, and fee transparency was also noticeably, if modestly, so. Things like financial strength, market image/reputation, and recognizable “brand name” funds stood out in their ranking of preferred provider attributes. However, when it came to things like participant service, reasonable fees, and provider Web site, there was no apparent difference at all.

Smaller programs were more likely to offer advice, and MUCH more likely to offer advice via an adviser outside the plan. Smaller plan sponsors were significantly more focused on the quality of advice to plan participants than larger programs, more worried about the reasonableness of fees, and placed less emphasis on adviser independence but greater emphasis on the ability to negotiate on behalf of the plan than did larger programs.

Of course, the service criteria are expressed in relative, not absolute, terms. That certain aspects were more important to smaller plans does not mean that others were unimportant. However, for those who work with and/or focus on smaller programs, those differences can be significant.

After all, we may all be alike—but that doesn’t mean we’re all the same.

—Nevin E. Adams, JD

Trends "Setting"

Change is a reality of life.

Establishing and maintaining benefit programs that are competitive and distinctive requires an awareness of trends in the marketplace, in the population, in the legislative and regulatory worlds, and in the needs of the workers that your plan sponsor clients hope to attract and retain. While product development and enhancements can certainly play a role, there are also the overarching issues that drive and shape those developments.

Here are 10 of which you should be aware.

Sandwich “Spread”?

Much has been written about the impact of the retirement of the Baby Boomers, the so-called Silver Tsunami. Every day, hundreds—even thousands—in that generational bloc do indeed leave the ranks of the employed, though not always by choice. Still, many are staying—or making plans to stay—longer than they might have chosen in less-stressful times. Indeed, the Boomers increasingly find themselves with a new labeling—the “sandwich” generation—in which they are not only focused on their own financial concerns, but those of their parents and children as well. This may give participants longer to save for retirement (and less time to spend in retirement), providing those still-meager accumulations a much needed cushioning, and it may also ameliorate some of the nascent concerns about talent transitions. But it’s not like that was part of “the plan.”

The “To Versus Through” Debate

Target-date funds have long offered an apparent simplicity of design and implementation that have made them appealing to plan sponsors and plan participants alike, a unique combination that allowed participants to do the “right” thing (letting professionals manage their money and rebalance it on a regular basis) while, for the very most part, doing nothing at all. Ditto plan sponsors, who stood to benefit from the application of the protective umbrella of the Pension Protection Act’s qualified default investment alternative (QDIA) status for an investment option that required no special participant education, involvement, or attention.

Of course, the 2008 market brought to light vast differences in the philosophies underpinning these designs in terms of asset allocation and glide path (in fairness, those were in evidence in 2006/2007 when more-conservative models were ridiculed for their lagging returns). Much of that difference was later explained as a function of whether the glide path was designed to take the investor to their anticipated retirement date—or past it (ostensibly till death).

The debate is not yet resolved, nor perhaps can (or should) it be. Still, ahead of changes on the regulatory front, fund manufacturers appear to be making a concerted effort to be clearer about those assumptions; and, if that does not make for an easier decision, it nonetheless makes it more obvious that a “decision” must be made.

The Match “Catch”

One of the more troubling trends of the past year was an apparent uptick in the number of employers cutting or suspending their 401(k) match. Coupled with the toll that the financial crisis had already taken on many defined contribution accounts, the retirement security of many participants (who were doubtless happy to have a job, even without a 401(k) match) was certainly under pressure.

Of course, it was never as bad as the headlines suggested. In fact, nearly 80% of the nearly 6,000 respondents to PLANSPONSOR’s annual Defined Contribution Survey said they had no plans to reduce, suspend, or eliminate their match, and, of the few who did say they were considering reducing their match, most were planning to reinstate it this year. Perhaps workers will no longer take such things for granted because, after all, “free” money really isn’t.

‘Share Alikes?

While company-stock-related lawsuits still seem to be the most common, that initial series of revenue-sharing suits is still “out there.” For the very most part, the plaintiffs have not fared well, but two widely publicized cases—one a $16.5 million settlement by Caterpillar, and a second involving Wal-Mart, where last December the 8th U.S. Circuit Court of Appeals found triable issues of fact in the case—are likely to keep plan fiduciaries “jumpy.”

Now, there are plenty of unique aspects to the Caterpillar settlement to differentiate it (see Tractor “Trailer”) the firm’s investment management arm was running the funds in question); and while the allegations against Wal-Mart were not dismissed, they have not yet been adjudicated (see The Benefits of the Doubt). Still, the omnipresent threat of litigation, coupled with new Form 5500 disclosures, are sure to keep things stirred up.

“Tell” Tales

Ah, yes—those new Form 5500 disclosures. Out of sight may have been out of mind, but beginning with the 2009 plan-year filings, the Labor Department has broadly expanded the requirements for reporting compensation earned by plan service providers on Schedule C of the Form 5500 to explicitly require the reporting of both “direct” and “indirect” compensation earned by plan service providers. And it is clear that the DoL views compliance with the Schedule C reporting requirements as part of a fiduciary’s obligation to evaluate the reasonableness of a service provider’s total compensation—at the same time that it stands to gain a better ability to use this data, which is now also to be filed electronically.

Pension Penchants

While many continue to talk about the wisdom of modifying defined contribution designs to more closely resemble the better attributes of their pension predecessors, trillions of dollars (and future benefits) still reside in those traditional defined benefit plans. Caught in the cross-hairs of the financial crisis, more stringent accounting rules, and tighter funding requirements, these programs are responding in a variety of creative ways: some outsourcing more, others less, some taking a more active stance in asset allocation, others opting for a stronger focus on liabilities. But, regardless, most are asking for—and by most accounts, receiving—fresh insights and inputs from the marketplace. That could be an opportunity for enterprising advisers willing to make the commitment.

The End in Mind

For years the retirement plan industry has focused on trying to help participants save as much as they could—all the way acknowledging that the real challenge was likely to be helping them live on that accumulated savings. As it turns out, a new generation of products has emerged that not only will help them do that, but will help them begin making those investments/preparations while they are still in that accumulation “phase.”

Issues in product design (or perceptions about issues in product design) remain, but those gaps are closing (including the gap in perceptions), and the prospects for future market turmoil seem likely to keep these offerings high on plan sponsor radar screens. And let’s not forget that the DoL has been asking for information on “arrangements that provide income after retiring.” (see IMHO: Safety "Knot?")

Conflict Ed?

What constitutes advice—and how those who can offer it can get paid for doing so—has long been a controversial issue. Earlier this year, the DoL took a step back from the position it took in the final regulations on the subject put together—by the DoL—in 2008 before being halted, and then withdrawn last November by the new Administration. The new proposed regulations largely seem to restore the status quo in favor of level-fee advice only. It’s not clear that is the end of things, nor is it (yet) clear that that will expand access to advice by participants. But it is clear that there is a “new” direction on advice (see IMHO: “Access” Points).

Executive “Order”

The 2008 elections brought in more than a new President and big majorities in Congress for his party; it also brought in new leadership at various agencies that have a large impact on retirement plans. That has already brought about shifts in direction on things like participant advice as well as a renewed interest in retirement income, while the financial crisis has reinforced the need for better disclosures on offerings like target-date funds.

Healthcare, Reformed?

By most accounts, much of the “oxygen” in Washington for the past year has been sucked up (out?) by health-care talk and proposals. With a bill now signed, employers can begin to focus on what that means for their programs—and their workers. What that will mean over the next decade is, however, anybody’s guess.

—Nevin E. Adams, JD

"Talking" Points

A little different take this week - or at least different medium.

This talking points podcast is with me, where I talk about the results of our annual Defined Contribution Survey – and the things to keep an eye on for 2010.

You can listen to it HERE

'Hind" Sighted

A year ago, with the financial world feeling still very much on the precipice, and with the 2008 election results still ringing in our ears, I noted that “the impact on much-improved defined benefit plan funding levels—and on the confidence of retirement savings plan participants—has been severe, and potentially serious. We are all inclined to wonder (hope?) if, like 1987, the market will find its way back to solid footing before year-end—and worried that 1929 will be the better analogy.”

Well, as we head into 2010, it seems fair to say that this is not a repeat of 1987 and—not yet, anyway—a second Great Depression. Here’s a look at the trends that were on our mind this past year – and are just over the horizon.

Doctor Bill? Curing Health Care

Where we are: Aside from the financial crisis and unemployment, health care has been the great issue of the past year and remains so as we go to press. That the current system needs reform is scarcely an issue for debate anymore—but what constitutes “reform,” and whether or not it can (or should) be paid for, is another matter altogether.

What’s ahead: Even at this stage, it is nearly impossible to guess how this one turns out—and what it will mean for employers. It is still hard to believe that the Senate and House positions on any number of key issues can be reconciled—but then, there was a point in the summer of 2006 when many felt the same way about the Pension Protection Act. But if it does pass—or if it does not—it seems safe to say that the issue is not going away any time soon. What remains to be seen is if the “cure” is worse than what it aims to remedy.

Fee Fie? Revenue-Sharing Litigation

What we said: Deep pockets continue to be the apparent target of revenue-sharing litigation. The early signs have been promising for employers, with most jurisdictions holding that revenue-sharing, per se, was not a problem, and that disclosure of those arrangements to participants was not required.

Where we are: The courts have, by most measures, continued to be willing to give the employers the benefit of the doubt in nearly every case. A recent decision by Caterpillar to settle its litigation might be seen by some to be a crack in that otherwise unspoiled landscape, but that seems unlikely (Caterpillar was an unusual case in that an internal division actually managed money for the 401(k) for a number of years). Though a revenue-sharing case filed in June in a case involved a much smaller plan, the fact pattern seems unusual enough, and the contingent fees so limited, that it seems unlikely to portend a big shift in focus to smaller plans.

What’s ahead: Barring a smoking gun discovery among the cases already filed, it seems likely that the laws—and disclosures—will change before the litigation has any real impact. On the other hand, it is entirely possible that the mere existence of that litigation—and the ever-present litigation threat—will serve to reform the system in a way, and on a schedule, that would not otherwise have been possible.

Auto-Premonition—Doing It for Participants

What we said: It is entirely possible that an Obama administration will, as mentioned during the campaign (see “Political Pairings,” PLANSPONSOR, June 2008), advocate workplace automatic enrollment IRAs. More significantly, there is a growing suggestion that the automatic design—having been successfully deployed for enrollment and investing—might work equally well at distribution, forestalling the tendency of participants to take—and spend—those lump sums. .

Where we are: This has been a tough year for participants and plan sponsors alike, and among some 6,000 plan sponsor respondents to PLANSPONSOR’s annual Defined Contribution Survey, the pace of automatic enrollment basically flatlined, with just under a third having embraced the design (more than half of the largest plans have, however). More significantly, just 16.2% of respondents had embraced it in the past year, roughly half the pace in 2008. Meanwhile, though the appeal of the concept of a more broad-based automatic enrollment retirement savings initiative has been touted, including by those in the Obama Administration, those efforts have taken a back seat to other matters.

What’s Ahead: Automatic enrollment may have taken something of a “holiday,” but it seems unlikely to be “over” as a trend. Look for it to pick up the pace again in 2010—and for the Obama Administration to turn its attention to the issue in the next year (or two).

Default Lines—Targeting Target-Dates

What we said: We ended 2008 with a growing awareness that all date-based solutions are not created equal. In a very real sense, we are in the first year of a new generation of participants who have not only been defaulted “in,” they have been defaulted into these funds—and just in time for the most tumultuous market in memory. It will be interesting to see how participants—and plan sponsors—respond.

Where we are: Congress has held hearings, and the Department of Labor and Securities and Exchange Commission are not only on the case, they are on the case together. The market rebound has served to restore some of the damage, but the scars remain. However, the target-date manufacturers have become more explicit about their glide path designs, and the notion that a fund family is oriented to take you “to” or “through” retirement is now an open dialogue.

What’s ahead: We don’t know yet what regulators may try to do to help ensure that investors—particularly near-retirees—are not misled by the simplicity of a fund title and marketing pitch. Plan sponsors are on notice that there are differences here, and with luck, will continue to ask pointed questions. Because, after all, when you’re selling “you don’t have to worry about it”, somebody has to.

Conflicts of Interests—Advice Regulations

Where we are: One of the last acts of the outgoing Bush Administration was the publishing of a set of final rules governing the provision of investment advice to participants—regulations for which the foundation was laid in the Pension Protection Act (PPA), but whose origins can be found in a series of legislative initiatives championed by Congressman John Boehner (R-Ohio) for more than a decade. Proponents had long said that participants clearly needed (and wanted) the advice, but that there needed to be a way in which advisers could be paid enough to want to take on the task. Opponents were just as concerned that the provision merely seemed to codify the provision of “conflicted” advice by setting out terms by which advisers could receive compensation that varied depending on the funds recommended.

Experts have long expressed amazement that the provisions survived the conference committee’s reconciliation of the PPA—but there they were. However, the controversy swirling around those regulations never subsided—and, thus, it was no huge surprise when the incoming Administration tabled, postponed, postponed again, and then officially withdrew the proposed final regulations, as it announced its intention to publish separately a proposed rule that it believes more closely conforms to the Pension Protection Act statutory exemption relating to investment advice.

What’s ahead: Will we ever get final advice regulations? Almost certainly, though almost certainly regulations very different from the ones put forth a year ago. Or perhaps they will not come until after the concepts embodied in the PPA have been recrafted by legislators, such as Congressman Rob Andrews (D-New Jersey), who has already introduced legislation (the aptly named “The Conflicted Investment Advice Prohibition Act of 2009”) that would do just that. Between now and then, participants will continue to get advice the way they always have—or have not.

Stop Gaps: Closing the Pension Funding Gap

What we said last year: The market’s tumult has taken its toll on pension portfolios and, in remarkably short order, managed to undo what had been a diligent, steady progress toward restoring the funding health of many programs. Of course, it also has served to favorably impact liability calculations, somewhat muting the damage. All in all, those workers covered by the promises represented by those programs must surely appreciate their position vis-à-vis those solely depending on defined contribution plans—but how will employers feel about those promises?

Where we are: Pension portfolios took their lumps from the investment markets last year, to put it mildly. That they were better diversified—and likely more insulated—from those travails than most defined contribution portfolios was surely a matter of some comfort, as has been their steady recovery in 2009. Still, there was a lot of damage to be undone, and for most it is still a work in progress—even as the press of more restrictive accounting and funding rules takes its toll. Fortunately, Congress has been receptive to calls for extensions that have provided some much-needed breathing room for these programs.

What’s ahead: It remains more expensive—and complicated—to walk away from pension commitments than most realize, though many employers remain committed to their pension plans for reasons that transcend those financial considerations. Still, it seems likely that freezes, both hard and soft, will continue to be applied, certainly in the private sector. The public sector’s commitment to pensions remains largely unabated—and yet, a sense remains that it may only be a matter of time before fiscal realities bring about a different result.

Tying Up “Loose” Ends—Full Disclosures

What we said: There’s little question that our industry would benefit from better disclosure about the fees paid for the services rendered to retirement plans and their beneficiaries. The proposal to expand/enhance reporting to plan fiduciaries, if imperfect, still seems to be headed in the right direction. Doubtless, some providers will adopt different business models to “duck” those disclosures just a little bit longer, but it seems clear that plan sponsors will want—and deserve—a full and fair accounting. It is less clear that participants will be as well served by an incomplete, and perhaps unbalanced, reporting of fees paid in their accounts—particularly if, as is currently proposed, the disclosures could add a dozen pages (and millions in expense across the industry) to their annual statements. It is also unclear just how much of this the current Administration will be able and willing to press into service in the short time remaining.

Where we are: In just a few short months, the 2009 Form 5500 will escort in a whole new level of plan sponsor fee disclosure, though the proposed participant disclosures are not yet on the radar screen.

What’s ahead: It is nearly impossible to argue against the critical importance of full fee disclosure, certainly to plan fiduciaries. Whether the current requirements truly constitute “full” disclosure remains a matter of some debate—but it is a start. On the participant side, the short-term implications are less clear; but then, we have some time—and a new Administration—to work through those issues.


— Nevin E. Adams, JD

"Worth" Whiles

I’m sure you’ve seen that commercial where a series of more-or-less everyday events and their price tags are presented, building to larger and more exotic events (and price tags) until they culminate with some extraordinary event—one that the announcer declares is “priceless.”

As an industry, we have long worried about the plight of the average retirement plan participant who doesn’t know much (if anything) about investing, who doesn’t have time to deal with issues about their retirement investments, and who, perhaps as a result, would really just prefer that someone else take care of it, though it’s not always clear how much they value that effort.

What gets less attention—but is just as real a phenomenon—is how many plan sponsors don’t know anything about investments, don’t have time to deal with issues about their retirement plan investments, and who, perhaps as a result, would also really just prefer that someone else take care of it. But how much will they pay for that?

Now, there’s a difference between choosing investments and selecting a trusted adviser to do so. However, as complicated as the former can be, there are certain touchstones that even an amateur can rely on, IMHO: developing a menu that encompasses a broad array of choices, that fill out a style box grid, that factor in performance results, and/or fund rankings. I’m not saying it’s “easy,” or should be entrusted to amateurs (particularly when issues of fiduciary liability are involved), but it’s certainly manageable.

Quantify Able?

Contrast that with the myriad challenges attendant to selecting an adviser—particularly when you consider that PLANSPONSOR’s surveys routinely show that plan sponsors choose an adviser primarily based on the quality of the advice they provide (primarily to committees, but a close second is the advice rendered to plan participants). One can’t help but wonder how that advice is quantified (certainly not in the same way that investment funds can be). Doubtless, that helps explain why so many advisers are hired not on what they know, but on WHO they know.

But for many plan fiduciaries, the obstacle to hiring a retirement plan adviser is financial, not intellectual. Particularly for a plan sponsor who has not previously employed those services—or, more ominously, in the case of one who has hired an adviser that didn’t hold up their end of the bargain—the additional costs of hiring an adviser can be problematic. The question that is frequently asked is, “Why should I hire you?” But, IMHO, the question that is really being asked is “Why should I pay you that much?”

There are ways, of course, to quantify the value of your services, ways that quantify not only what you are worth, but why your fees are what they are. In the most obvious case, you come in and demonstrate the ability to save a plan money. That’s clearly added value, and value that is readily measured (that, of course, only lasts a year, maybe two; after that, the baseline has been reset in terms of savings expectations).

Similarly, your ability to increase plan levels of participation, deferral, and investment diversification also adds value—but value that, IMHO, like the value of retaining qualified talent, is harder to quantify. Many advisers promote their services as a shield against litigation, or at least some kind of buffer against the financial impact of such an event, but in my experience, while most employers are glad to get/take the “warranty” (implied or explicit), they generally aren’t willing to pay very much extra for it.

Where else can you make a difference? You’ve no doubt seen surveys that show that, in the course of a year, most participants spend more time thinking about—and planning for—their vacation than about their retirement plan investments. Ask any plan sponsor client or prospect how much time they spend working on, or worrying about, their retirement plan, and you’ll probably find a similar imbalance. Of course, plan sponsors, like plan participants, know that they should be spending more time on such matters—and most will admit that, no matter how much time they are spending, they should be spending more.

So, how much time are they spending? How much more do they wish they were spending? How can your involvement reduce the time they spend and/or improve the quality of the attention they give their retirement program? You have the ability to share with them insights—from your other clients, from industry surveys that you gain from attending industry conferences; you can help them make better decisions quicker because your experience offers insights to which they wouldn’t otherwise have access.

So, save them money if you can, save them aggravation if you have to, but in this crazy, hectic period, if you can save them time—well, IMHO, that’s truly “priceless.”

—Nevin E. Adams, JD

See also “IMHO: ’Right’ Minded” at

IMHO: Change of “Hearth”

We made a provider change last week.

We really hadn’t been focused on making a change, though the subject had come up from time to time. In fact, considering how long we had been thinking about making a change without actually doing anything about it, the change itself felt almost accidental in its suddenness. So sudden, in fact, that, in hindsight, I found myself wondering if we were “hasty”—perhaps too hasty.

Make no mistake—we had been happy enough with our current provider, certainly at first. In fact, we had been with them for a number of years and had, over time, expanded that relationship to include a fully bundled package of services. That made certain aspects simpler, of course—though we discovered pretty quickly that the “bundle” presented more seamlessly than it actually was delivered. Still, net/net, we were ahead of the game financially, and certainly no worse on the delivery side; we were just a bit disappointed in the disconnect between the sale and the service levels.

And all was fine for a while—or so it seemed. Looking back, there were signs of trouble that we could have seen—if we had been looking. There were unexpected charges on the invoices, and services that we were sure had been described as being part of the bundle that turned out not to be. There was the monitoring service that was supposed to be in place that we found out wasn’t—quite by accident, and months later. Over time we cut back on the services included, but the prices just kept going up. We were, quite simply, getting less and paying more, and getting less than we thought we were paying for. And it grated on us.

In hindsight, I wish we had been more vocal about our discontent. That we had called up and questioned those invoice charges. But, in the overall scheme of things, the charges weren’t large, just not what we expected. We figured that perhaps we had been the ones to misunderstand—and didn’t want to look “stupid” by calling to complain about a charge that some fine print in some document somewhere said was perfectly legitimate. Meaning always to go check that out sometime, the time to do so never materialized. Instead, we talked about how aggravating it was—and how we should do something about it…sometime.

Unfortunately, change is painful and time-consuming. The emotional and fiscal toll these changes took, while annoying, simply wasn’t enough to put change at the top of the to-do list. So, we talked about a change—and every so often asked friends and acquaintances about their experience(s). Of course, it was hard to find someone else who was in exactly the same situation—and a surprising number simply empathized with our plight, being stuck in much the same situation themselves. All of which conveyed—to us, anyway—a sense that, uncomfortable as we might be with the service package, we were probably about as well-positioned as we could be.

Then, one day, out of the blue, an opportunity presented itself. We weren’t looking for it, as I said earlier, but the months of frustration left us open to a casual message from an enterprising salesman—who not only knew his product, he clearly knew the problems that others like us had with the provider we were with. He did more than empathize with our situation. He did not pump me for information about what I was looking for, or what I didn’t like about my current situation. Rather, he was able to speak about the features/benefits that his firm offered…and, to my ears anyway, essentially ran through the list of concerns I had—but had not articulated—with our current situation. In fact, before our conversation was done, he had pointed out to me things that his firm offered as a matter of course that my current provider hadn’t even mentioned to me in all the years we had been associated—things I had assumed we couldn’t get, or couldn’t get without paying a lot more.

We made the change this past weekend—and while it’s early yet, I’m thrilled with the results.

Now, I realize I never gave my current provider the option of retaining my business. Moreover, I know that, had I simply made a call to tell them about the package/price we were getting from the new provider, they would have matched, if not bettered, the deal. Ironically, both points were made—and made somewhat obnoxiously, IMHO—when we called to tell our former provider about their change in status (ironically, by being a jerk about the whole thing, it only served to affirm our decision).

Ultimately, our former provider set themselves up by taking our business for granted, for (apparently) caring more about attracting new customers than in attending to our concerns, and for (apparently) assuming that “quiet” meant satisfied.

Are YOUR customers happy, content, and “quiet”? Or have they just quit complaining?

—Nevin E. Adams, JD

Editor’s Note: For the record, the provider change recounted above involves my cable company.

A SunAmerica Opinion

I am admittedly something of a pension (and regulatory) geek, but when the SunAmerica Opinion was published (December 2001), it was clear that something big had just happened.

Not only did the Labor Department sanction an arrangement that, for the first time, allowed an investment management firm to offer advice on its own funds and be paid for that advice—even if that advice impacted the compensation received—it made the effort to make that decision public; IMHO, signaling to the industry that the model sanctioned in the Advisory Opinion ) could serve as a blueprint for other investment firms (and advisers) to follow in those footsteps. Indeed, it was issued not as a prohibited transaction exemption in a specific situation (though that was what had been requested), but as an advisory opinion on the program’s structure.

Sure enough, in the months that followed, it seemed as though just about every large DC provider put together some kind of program that, like the SunAmerica model, applied some kind of independent asset-allocation computer modeling to their DC platform investment offerings. In no time at all, millions of participants1 who had been looking for a bit of substantive guidance on how to invest their 401(k) balances had an answer—and, it should be noted, generally at a price that they found attractive (it was often included at no additional cost). In fact, after the SunAmerica opinion took hold, it always seemed to me that the urgency around finding a way to provide “advice” to participants was greatly diminished.

That wasn’t the end of the issue, of course—even when then-Assistant Secretary of Labor Ann Combs published the SunAmerica opinion for the world to see, she noted the Labor Department’s continued support for advice legislation long-championed by Congressman John Boehner (R-Ohio), legislation that, in large part, found its way into the (still) controversial fiduciary adviser provisions of the Pension Protection Act (PPA) (see “DoL Lowers Another Advice Barrier”).

Still, I was surprised when Assistant Secretary of Labor Phyllis Borzi invoked the name of the SunAmerica Opinion at a recent conference; particularly when she said she had heard reports that firms had been inappropriately taking advantage of its provisions (see “EBSA Sets Out Carrot, Stick Agenda”). Now, Secretary Borzi didn’t elaborate on any specific firms, but considering that the original opinion contained a number of specific conditions, it is entirely possible that, eight years later, one or more firms have managed to “gloss over” some key elements either in designing or in explaining their program(s). It is even possible, of course, that some have flagrantly disregarded those provisions. Those situations should be dealt with promptly and, IMHO, visibly.

I was also struck by the repeated invocation of the SunAmerica opinion last week in a hearing by the House Ways and Means Committee (see “House Lawmakers Hear DB Funding, Advice Bill Pleas”). Most of the witnesses expressed concerns that legislation recently proposed—the 401(k) Fair Disclosure and Pension Security Act of 2009 (HR 2989)—would, in its attempt to eliminate the fiduciary adviser provisions of the Pension Protection Act (PPA), also, at least effectively, and perhaps unintentionally, lead to the elimination of many advice programs in place prior to the PPA’s passage, including those predicated on the SunAmerica structure. I say “effectively” because the proposed law would basically impose the stricter PPA computer model auditing requirements on any computer-modeled advice—and the concern is that the cost and complexity of doing so will lead firms to disband those programs and/or employers to cease offering them.

It is not clear to me at this point that that was the intent of the proposed legislation, though it may well be the result. No one is in favor of conflicted advice (though we may disagree on what falls within that definition)—but, however complicated we may try to make it, most participants (and plan sponsors) don’t care whether you call it “advice” or “education.”

They just want some help.

—Nevin E. Adams, JD

(1) The Profit Sharing/401(k) Council of America reports that 20 million participants are offered advice through Sun America arrangements.

You can check out the full testimony from the House Ways and Means hearing HERE

“To Do” List—Part 2

Being a plan fiduciary is a tough job—and one that, it’s probably fair to say—is underappreciated, if not undercompensated. In my experience, most who find themselves in that role (see “IMHO: Duty Call”) do an admirable job of living up to the spirit, if not the letter, of their responsibilities.

Nonetheless, there are plenty of areas in which we could do a better job. In this week’s column, we’ll touch on the rest of my “10 things you’re probably doing wrong” list:


6. Thinking your plan qualifies for 404(c) protection—and misunderstanding what that means.

Any number of studies suggest that many, perhaps most, plan sponsors think their plan meets the standards of ERISA 404(c ), a provision that ostensibly shields them from being sued for participant investment decisions, so long as certain conditions are met.

On the other hand, industry experts are nearly uniform in their assessment that very few, perhaps no, plans meet those standards (though the courts have been somewhat more liberal in their application). So, even if you think your plan does comply—check. And even if your plan does comply, understand that, while 404(c)’s shield may offer some protection against an individual participant suit, it offers no insulation against a participant suit predicated on an inappropriate investment option. Remember, too, that the DoL thinks you’re responsible for every participant investment decision except those behind 404(c)’s “shield.”

7. Depositing contributions on a timely basis.

The legal requirement for when contributions must be deposited to the plan is perhaps one of most widely misunderstood elements of plan administration. Unfortunately, a delay in contribution deposits is also one of the most common flags that an employer is in financial trouble—and that the Labor Department is likely to investigate.

Note that the law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. Many have read the worst case situation (the 15th business day of the month following) to be the legal requirement. It is not.

8. (Not) monitoring providers on a regular basis.

In some sense, we all “monitor” the performance of plan providers all the time. Is the Web site available when people try to access it? Do checks and statements arrive on time? Are the balances displayed accurate? The reality is that, for most of us, no news is seen as “good” news. After all, if the answer to any of those questions was “no,” we’d not only know about it, we’d be complaining about it (after fending off our own set of complaining phone calls). Odds are that you have a very full-time job dealing with the things that are “broken”—why go looking for trouble?

However, relationships with providers are like any other relationship—we all slip into “ruts” of complacency—and the best way to keep that new customer “honeymoon” feeling alive is to do something as simple as ask your current provider for a regular service review. At least once a year—no matter how well things are going—you should determine if your plan has access to the new services that have come online since you converted; that you are getting the advantages of the most current thinking about costs and fees; and how your plan’s participation, deferral, and asset diversification stack up. And every three to five years (sooner if there are problems, of course), you should go through a formal request for information (RFI) or request for proposal (RFP) process—on your own, or with the help of an adviser (who doubtless has more experience with such things).

Remember also that the DoL says that, “Among other duties, fiduciaries have a responsibility to ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.”

9. Not following the terms of the plan document.

Plan documents are, after all, legal documents and can skirt the fringes of readability. Retirement plans develop certain patterns or routines—the way things are handled—that may not, over time, remain consistent with the terms of the plan. Particularly if you are using a plan document prepared by a provider (or, worse, an ex-provider) that may well accommodate that provider’s approach, but may not match (or may not have kept up with) how you actually administer the plan. It is a good idea to do a document/process “audit” every couple of years; don’t assume that “the way we’ve always done things” is supported by the legal document governing your plan.

10. Not realizing who is a fiduciary—and what that means.

The first thing to understand is who a plan fiduciary is, and to understand that the “test” isn’t what you call yourself (or, in some cases, what you avoid calling yourself), but your ability to control and influence plan assets. A fiduciary is any person or entity named in the plan document (e.g., the plan sponsor and trustee); any person or entity that has discretionary authority over the management of a retirement plan or its assets (all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee—if it has such a committee—and those who select committee officials); and any person or entity that offers investment advice with respect to plan assets, for a fee.

Remember too, that the authority to appoint a fiduciary makes you a fiduciary—and that hiring a “co-fiduciary” does not make you an “ex” fiduciary.

If you are a fiduciary, and you feel that you lack the expertise to make those decisions, you will of course want—and, in fact, are expected—to hire someone with that professional knowledge to carry out the investment and other functions.

Finally, remember that, IMHO, you’re more likely to get sued for not doing something you should be doing than for doing something you shouldn’t be doing.


—Nevin E. Adams, JD

You can find more information on fulfilling your fiduciary responsibilities at the Employee Benefits Security Administration’s (EBSA) Web site HERE