Retirement Advisor Council Blog



The SECURE Act of 2019 has spurred even greater interest in Multiple Employer Plans (MEP), and created new arrangements such as Pooled Employer Plans (PEP), and Groups of Plans (GOP). This popularity has the potential to alter the structure of the Retirement Plans landscape and to transform plan advisor practices. 

For advisor teams, the emergence of PEPs presents both a threat and an opportunity.  At a recent meeting of the Retirement Advisor Council, Michael Rhim of PRM Consulting, Mark Olsen of PlanPilot, Nichole Labbott of Sageview Advisory Group, and Terry Power shared their perspective.  Council members Scott Schlappi and Paula Hendrickson moderated the session.

The SECURE Act stated a specific goal of enhancing the availability of defined contribution retirement plans among small employers. This is integral to the intention of providing access to 401(k) plans for those Americans who can’t participate in such a plan today.  However, benefits extend to all employers, not just small business.

PEPs are of particular benefit to current plan sponsors with 100 to 500 employees.  Indeed, upon joining a PEP, these employers will no longer need to file a Form 5500 or have an annual plan audit for their own plan.  They will also limit their fiduciary responsibility to the selection and monitoring the Pooled Plan Provider (PPP).  No longer will they be liable for the selection and monitoring of investment options, or for plan administration. 

The benefits of PEPs and other pooled arrangements extend to employers of all sizes and in all industries. This gives plan advisors the opportunity to discuss the characteristics of these new options with current clients, even if (or maybe especially if) the client is not a good prospect for these new options.  For example, employers with a strong preference for a custom retirement plan solution and sufficient scale to negotiate preferred services from their recordkeeping service provider wouldn’t be particularly good candidates for a PEP. However, these employers may question the value of their current advisor relationship if they learn about these arrangements from a competing advisor.

Terry Power warns advisors, “Be aware of what is happening in the market because you will get phone calls from clients who have been approached about it.”  For this reason, Terry proposed that PEPs present an opportunity for advisors who enjoy educating plan sponsors.  ”Educating clients gets us and keeps us involved in the discussion even if it is not the best solution for the client.” Mark Olsen added.

Scott Schlappi pointed out that discussing the practice’s posture regarding PEP plans highlights the difference between cost and value proposition.   “If you hear it’s cheaper – it is because your fee is cheaper, it is not because the recordkeeper’s fee is cheaper.”  And the situation may be even a bit more complicated.  Mark Olsen pointed out that an advisor becoming involved with a PEP plan for multiple clients may actually lose revenue in the short term: “You may get a drop of revenue but some years down the road, it may create larger margins.”

Terry Power replied that “But there is good news too; your cost will go down as well.”  For this reason, Michael Rhim recommended that advisors approach MEPs, PEPs and GOPs strategically, to gain the experience that puts them in a position to speak to PEPs with authority: “You have to be strategic about the way you approach the multiple plan market.  How you want to structure pricing and service model, because if you don’t have the experience, it puts you behind other advisors who do.”

The strategic approach seems to be the right one. Becoming a PEP advisor doesn’t entail providing soup-to-nuts service to the PEP.  There are several roles for an advisor to pick and choose when it comes to their typical involvement in a PEP plan as Mark Olsen pointed out:

Advisors can play different roles in relationship to the PEP.  It may take a little introspection on the part of the advisor to determine the best approach. Where is the emphasis or sweet spot for the practice?  Is it to be the 3(38) investment adviser, the educator, or a custom portfolio manager?

To select the role an advisor wishes to play with PEPs, Michael Rhim: suggested that advisors ponder three critical and revealing questions:

  1. Does it make sense for you to be an advisor for a MEP or a PEP?
  2. How do I deepen my relationships with my clients and discuss with them if a MEP or a PEP makes sense for them?
  3. What services can I offer to them?

Working in teams may be the best option for an advisor.  Nichole Labbott pointed out that “Collaboration has to be in the spirit of what you provide.  We are a 3(38) and we pride ourselves in consulting.  You have the opportunity to partner with others.  Plan sponsors like to hear confirmation from multiple parties (auditor, ERISA attorney, other professionals).” Working in a team with other professionals adds credibility to the services that you provide.

While many plans will have a geographic or regional component in nature, Terry Power suggests that advisors deciding to get involved with PEPs look at their entire block of business and ponder if it makes good sense to set up a proprietary PEP for their client base.  Group of Plans (GOPs) will start in 2022.  Advisors can create a group of plans that share the same investment trust.  For example, they could create a group of plans consisting of clients of a given ERISA attorney.  A new frontier may be on the horizon. Advisors will need to educate themselves on what makes the most sense for them and their practice overall. Meanwhile, their clients will keep them on their competitive toes in the ever-changing retirement industry. Is it PEPs, MEPS, GOPs or not?


The SECURE Act: A conversation starter, full of opportunities to increase savings and implementation challenges

care blog3The Setting Every Community Up for Retirement Enhancement ("SECURE") Act, which was signed into law on December 20, 2019, is being hailed as the most significant retirement savings reform since the Pension Protection Act in 2006. 

So what does the legislation mean for plan advisors, service providers and investment managers? Plan amendments, changes in systems and procedures, new education and training, and, last, but certainly not least, many, many opportunities to increase plan coverage and savings. 

This article highlights eight key actions to be taken to implement and comply with the SECURE Act provisions for qualified defined contribution ("DC") plans, as well as opportunities to discuss with plan sponsors changes in investment line up and other features of their DC plans. Please note that the CARES Act, the coronavirus economic stimulus package, has extended a few of the SECURE Act effective dates, and other effective dates are subject to further delay. 

The SECURE Act also provides opportunity to approach employers that have not yet established a plan for their workforce.  Here are a few action items and suggestions pertaining to the SECURE Act:

  1. Review with plan sponsors procedures to comply with SECURE Act requirements that are immediately effective (amendments to plan documents required by 12.31.2020):
    1. Eliminate plan credit card loans;
    2. Remove restrictions on distribution of lifetime income investment that is no longer authorized to be held in the plan;
    3. Permit penalty-free, in-service distribution for "qualified disasters", with the ability to recontribute the distribution within three years;
    4. Permit penalty-free, in-service distribution for "qualified birth or adoption";
    5. Increase required minimum distribution age to 72 years old (the CURES Act permits waiver of all RMDs to be made in 2020);
    6. Limit "stretch RMD".
  1. Review with plan sponsors opportunities for increasing savings and retirement security that are immediately available:
    1. Increase safe harbor cap on automatic enrollment and auto-escalation to 15% for years after the first plan year in which the employee is automatically enrolled; 
    2. Discuss with small employers (up to 100 employees) their eligibility  for a $500 credit for up to three years, if they add auto-enrollment
    3. Take advantage of the fiduciary safe harbor for selection of an annuity provider to provide an in-plan annuity investment option, or a lifetime income distribution option.
  1. Begin discussing with plan sponsors process steps to comply with new requirements to take effect in future years:
    1. Coverage of long-term, part-time employees (mandatory) for plan years beginning December 31, 2020, except that for purposes of the new eligibility requirements, the 12-month period before December 31, 2020 need not be taken into account;
    2. Lifetime income disclosure: must be added to annual statements furnished more than 12 months after the latest issuance of DOL's issuance of interim final rules providing guidance on a model disclosure or permissible assumptions. Start talking about assumptions, models and how to most effectively build on the disclosure to help participants understand the value of their savings.
  1. Take advantage of the buzz and seize the opportunities that may arise from the SECURE Act. Advisors and Service Providers should meet with plan sponsors to discuss the various opportunities, new tax credits, changes in plan notices and education delivered to plan participants, as well as implementation challenges of the new law. Set up a time frame for making decisions about possible changes. Significant provisions for DC Plans include:
    • Increased auto-enrollment caps;
    • Addition of lifetime income options as a plan investment and a distribution option;
    • Prospective electronic delivery of plan communications once the Treasury proposed rule on e-delivery becomes finalized.
  1. Start working on system changes, plan amendments and participant notice changes.
  1. The SECURE Act includes many required changes to plans to increase coverage, to help increase financial literacy of plan participants, and otherwise: 
    • Required coverage of long-term, part-time employees. Vesting schedules need to be changed to accommodate these workers; however, the SECURE Act does not preclude plan sponsors from vesting these employees on the same schedule as other employees;
    • Provision of lifetime income disclosure - need to determine model and assumptions per DOL guidance; 
    • Increase in the Required Minimum Distribution age to 72 (see IRS Notice Notice 2020-6, providing relief for financial institutions who provided erroneous information to IRA account holders who reach the age of 70 ½ in 2020);
    • Penalty free withdrawal of up to $5000 upon the birth or adoption of a child;
    • Penalty free distributions or loan up to $100,000 for disaster relief from January 18 through February 18, 2020;
    • Changes to stretch IRA to require distributions within 10 years unless exceptions; 
    • Repeal of age limitations for contributions to IRAs.
  1. Train Contact Center Staff
    • Educate Call/Contact Center staff regarding the plan amendments and procedure changes so they can accurately respond to employees.
  1. Opportunities to increase coverage - increase the buzz and meet with prospects - employers that have not yet established their own plans
    • Discuss with service providers their plan to offer: 
      • Open pooled employer plans/ open MEPs
      • Plan aggregation with consolidated Form 5500
    • Inform employers of the tax credits available for both setting up a new plan, as well as adding automatic enrollment. 

Don't forget to meet with plan sponsors to discuss required changes to comply with the SECURE Act, as well as opportunities to increase savings and enhance retirement security preparedness of plan participants.  Finally, join the Retirement Advisor Council's Government Affairs Committee to participate in discussions regarding regulatory guidance that will define important provisions of the plan such as lifetime income disclosure models.


The CARES Act: Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, President Donald J. Trump signed into law the CARES Act, a $2 trillion stimulus package to help combat the coronavirus and its economic impact. 

care blog1The CARES Act provides economic relief to business owners and to hospitals and government agencies battling the coronavirus, the CARES Act provides the following temporary preservation of and access to accumulated retirement savings. 

Waiver of the Required Minimum Distribution rules. 
RMDs from any defined contribution plan or IRA for the 2020 calendar year are waived.

In-Service Distributions
Individuals "impacted by the coronavirus" will be able to take up to a $100,000 in-service distribution from their defined contribution plan and IRA anytime during the 2020 calendar year with the following accommodations. The distribution shall be made without regard to the IRC limitations for hardship distributions;

  • Exempt from the 10% early distribution penalty
  • Exempt from the 402(f) requirements and mandatory 20% withholding applicable to rollover distributions
  • The amount distributed may to be claimed as income over a three-year period beginning with the year the distribution would otherwise be taxable; and 
  • The amount distributed may be recontributed to the plan or IRA within three years, in which case the recontribution is treated as a direct trustee-to-trustee transfer within 60 days of the distribution,

Only individuals impacted by the coronavirus are eligible for the distributions. An individual impacted by the coronavirus is defined as one:

  • Who is diagnosed with coronavirus
  • Whose spouse or dependent is diagnosed, with either the SARS-CoV-2 or coronavirus disease,
  • Who has experienced adverse financial consequences resulting from being quarantined
  • Who is unable to work due to child care, furlough, job loss, etc.

Diagnosis of the virus is to be made by a CDC approved test; however, the employer may rely on the employee's self-certification. 

care blog2

Plan Loans
For individuals impacted by the coronavirus, as defined above, the maximum loan amount that can be taken from a plan is increased to the lesser of (1) $100,000 ( an increase from $50,000) or (2) the greater of $10,000 or 100% (from 50%) of the present value of the participant's vested benefit. 

Any loans taken by an individual impacted by the coronavirus may be taken anytime during the 180-day period beginning on March 27, 2020 the day the CARES Act became law. In addition, repayment of any loan otherwise due from the date of enactment through the remainder of calendar year 2020 will be delayed one year. 

Plan Amendments
Plan amendments to take advantage of the above relief must be made no earlier than the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for government plans). 

Student Loans.
Student loans often compete with retirement savings. The CARES Act can offer relief of up to $5,250 in tax-free student loan repayments that meet certain requirements.

At the time of this publication there are additional relief packages under consideration in Washington. Many Americans are under a "stay at home" order. Altogether, approximately 250 million Americans - about 75% of the country - have been told to remain sheltered and, when engaged in essential activities, maintain at least six feet of distance from those who are not members of their immediate household. The impact on business both large and small continues to accrue. This is truly a pandemic. No region of the world is untouched. We will continue to monitor activities in Washington and keep you apprised of legislative or regulatory changes. 


How We Can Improve Transition to Retirement Income

blog retirement incomeIn late 2005, I was asked to lead an effort to deliver products and services to people transitioning into retirement. Every single area of my firm-and pretty much the entire financial services industry-was hyperventilating about this opportunity, fortified by a steady diet of news items about the 10,000 Baby Boomers retiring each day.
The Evolving Retirement Landscape
We created exhaustive educational programs and sophisticated interactive tools to help pre-retirees and their advisors gear up for the daunting task of creating lifetime income plans, and we developed investments designed to assist in the effort. But by 2008, our collective attention was diverted by the global financial crisis, and many of the industry's products and services created up to that point were folded.
Thirteen years later, the topic of retirement income is trending again, and this time it feels like it's got legs. Some 63% of 401(k) plan assets are owned by participants in their 50s and 60s.[1] That's causing plan sponsors to re-think their reluctance to encourage retirees to remain in their plans, as they consider the impact of the potential exodus of more than half of their plan's assets on plan fees. This, in turn, is pressuring recordkeepers to enhance their systems to allow for more flexible payout options. Having long served as retirement asset accumulation vehicles, 401(k) plans may need to evolve to be more accommodating for those transitioning into retirement.  Given this backdrop, how should consultants to 401(k) plans respond to the potential movement of accumulated plan assets from 401(k) plans?
Set Your Plan Up for Flexibility
Begin by talking with plan sponsor clients about their attitudes toward participants remaining in the plan post-retirement. Paternalistic plan sponsors, perhaps protective and concerned about the future well-being of their employees, may encourage them to stay in the plan and avail themselves of the institutional pricing and fiduciary investment oversight. Others will be concerned about the potential liability and complexity associated with having participants with balances who are no longer employees. In either case, the plan sponsor should be aware of how the plan's recordkeeping and administration fees might change if many large-balance retirees opt to take a distribution at retirement.
Next, consider the capabilities and functionality of the plan's recordkeeper. How often may a participant take withdrawals from the plan? Are there fees associated with these distributions? Can the participant direct the funds from which the distributions are made? Some recordkeepers began to address distribution flexibility when the Department of Labor signaled its concerns about plan distributions within the now-vacated Fiduciary Advice Rule, and I would expect more progress to come. You'll also need to ensure that plan documents reflect the plan's objectives for the types of distributions that are permitted.
Focus on Income Generation Potential
Review the plan's investment lineup with an eye toward income generation. Does the menu provide a sufficient mix of options needed to allow retirees to generate income? Plans tend to focus on investments that are designed to facilitate growth and accumulation. I believe that now is the time to consider volatility-dampening and income-generating strategies, and managed accounts that include personalized 401(k) plan draw-down strategies.
Finally, think outside the plan. Can you offer targeted education on topics directed at pre-retirees, such as optimal Social Security claiming strategies, or maximizing the potential benefits of a managed account by providing additional personal financial data?  The 401(k) plan was conceived as a retirement plan supplement and has matured to be the primary source of retirement savings for many workers. This is an ideal time for retirement plan consultants to help clients tailor their plans to address their retirement income preferences.  Click here for more information.
Kathleen Beichert
Head of Retirement and Third Party Distribution,
Oppenheimer Funds
These views represent the opinions of OppenheimerFunds Head of Retirement and Third Party Distribution and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments. Shares of OppenheimerFunds are not deposits or obligations of any bank, are not guaranteed by OppenheimerFunds, are distributed by OppenheimerFunds Distributor, Inc.
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What We Can Learn From the Accidental Retiree?

food for thoughtA relative about to turn 62 wanted to discuss his retirement with me recently. He had started out as a delivery truck driver and advanced to commercial pricing. His situation looked like this:
$400,000 in profit sharing and 401(k) plans, an estimated monthly Social Security benefit of about $1,800 with early retirement at 62 and the payout from a frozen defined benefit (DB) plan of $720 per month.
I did a quick, back-of-the envelope guesstimate - $400,000 with a 5% draw-down would be $20,000 per year;Social Security would add another $21,600 per year, along with $8,640 annually from his pension - for an annual income of $52,600 in retirement. That would be a 105% replacement rate of his current income in the $50,000 range. Wow! I was impressed, to say the least.
How did he do it?
So, I had to know: How? As long as I'd known him, he seldom, if ever, discussed his retirement plan or savings and showed limited concern about the long-term plan. What was the key to his success? Simple - he did nothing. Well, not nothing, but there was little active participation. The keys to his success are:
  • 42 years at the same company
  • A DB plan
  • A profit-sharing plan that changed to an auto-enrolled 401(k) plan
  • Employer-controlled investment management.
  • No provision for withdrawals before retirement date
How does it apply to us?
How can the rest of us replicate this "wow" replacement rate? Unfortunately, most people don't have a DB plan, and few work for the same company for 42 years. But there are clearly things we can learn.
We could at least come close if every retirement plan in the United States could:
  • Auto enroll employees at a 6% level
  • Auto increase employee contributions
  • Limit in-plan withdrawals to severe hardship
  • Provide a professionally managed qualified default investment alternative (QDIA) or an investment option that adjusts for the needs and ages  of its participants 
But how do we replicate 42 years at the same company? Perhaps Congress or the Department of Labor could require participants to roll over all plan assets to the successor company or to a special IRA that doesn't allow withdrawals until early retirement dates.
The result? While other participants might not work at the same company for 42 years, they could work 42 years and have 42 years of contribution and growth upon reaching early retirement age. This isn't a simple change, and rules wouldn't solve the rollover or distribution issue immediately. But they could over the long run. Plan design, investment design, and limited access could be the key to retirement readiness with a "wow" factor. That would create many more happy accidental retirees like my relative.
Jeff Hemker
National Sales Manager, Retirement Division
  1. For illustrative purposes only, based on a hypothetical portfolio earning an average annual return of 4% and a 5% withdrawal rate over 35 years. This example is for hypothetical purposes only and does not reflect the performance of fees and charges associated with any specific investment, nor does it take into account the effect of taxes or inflation. The assumed rate of return in the example is not guaranteed; investment returns fluctuate over time and losses can occur.

The Importance of diversification--thoughts from Cohen & Steers

diversificationThe importance of diversification can't be overstated. Retirement plan sponsors, advisors, and consultants should be aware of a simple, effective addition they can make to their defined contribution (DC) plan lineups - the inclusion of real estate investment trusts (REITs). 
Some quick facts:
  • Real estate can enhance a portfolio's risk-adjusted returns because of low correlations with stocks and bonds, attractive total-return potential, and inflation-hedging ability.
  • While real estate typically makes up 5% - 15% of the asset allocation among institutional investors, according to Brightscope only 45% of DC plans with 100-plus participants offer real estate as an investment choice. And among those plans, allocations to real estate average just 2% of plan assets.
  • Just as real estate can help diversify overall portfolios, REITs themselves are diversified. They include a wide range of property sectors with varied business models, supply-and-demand cycles, geographies, and are affected by wide-ranging macroeconomic conditions and governed by varied interest-rate policies. All of this adds to diversification.
  • U.S. REITs outperformed the S&P 500 Index in 18 of the 26 calendar years through 2017, according to Morningstar. It's true that past performance is no guarantee of future results. But are you willing to ignore an asset class with such strong historical returns?
To learn more about REITs, their diversification potential, past performance, inflation protection, and how they can help your plan participants, click here to read "REITs: Answering the Call for DC Plan Diversification."
Cohen & Steers
Global Investment Manager

Thoughts on the Long-term Impact of the Rush to Passive-Management

past present and future imageIt's no secret that profit margins in the defined contribution and asset management businesses are under tremendous pressure. Plan administrators have been running on fumes (i.e. microscopic margins) for years, which means they will do whatever they can to deflect the pressure elsewhere. Asset management and plan consultant services are bearing the brunt of the changes.

As part of our latest research effort, Sway Research surveyed just over 200 DC plan consultants, including those at firms that specialize in employer-benefits and those who have both a large wealth management practice and a substantial book of DC plans. We asked this group to rate their level of agreement with the following statement:

I/we have experienced substantial fee compression in the DC plans we sell and service.

As shown in the accompanying exhibit, 49% of respondents agreed, 8% of whom did so strongly, while just 19% disagreed. So, what is the impact of fee compression to these practices? Well for one thing, an even greater percentage of respondents agreed with this next statement:

Fee compression is negatively impacting our revenues and thus the growth of our practice.

Nearly three in five respondents share experiencing revenue erosion resulting from the downward pressure on DC plan fees, which is impacting the ability to grow. Nearly a quarter are in strong agreement, suggesting this is a significant issue for these plan consultants.

What are some logical responses to this issue? Well, clearly one way to deal with this is to deflect the fee cuts towards the investment providers. Some margins left in this business are held by asset managers, particularly active managers. Thus, there's the recent rush to bring more passively investments into DC plan menus, which has also been spurred on by the litigious environments surrounding plan menus and investment selection. In fact, more than half (53%) of DC Plan consultants say they are increasing usage of passive options in plans, even though more than a third of their DC plan AUA are already held in passive products.

Another area ripe for cost cutting is in investment vehicle (i.e., shifting from higher-cost mutual funds to lower cost collectives). This year, two in five survey respondents acknowledge ramping their use of CITs in DC plans as well. The level is even higher among consultants who focus on plans in the $20M to $50M range.

But, wringing out fees from investments can only go on for so long, before there's nothing left to cut, and only a few asset managers are left standing. A world with only Vanguard and BlackRock may make for easier decision-making when it comes to populating investment menus, but plan consultants will have lost more than a much wider array of investments from which to choose. If it comes to this, plan consultants will have also lost many of their key allies in growing a DC plans business.

Each year, in addition to surveying plan consultants, Sway surveys the DCIO sales leaders of approximately 30 leading asset managers. And, each year when asked about their top-priorities for investment, these executives place the development of value-support programs and services for plan consultants near or at the top of their list. The only area ahead of this is usually staffing, which is mostly internal and external DCIO representatives who are tasked with supporting plan consultants. With asset management becoming increasingly commoditized, the value-add side of the equation, whether delivered through the market knowledge and expertise of staff, or via tools and programs designed to help plan consultant's prospect for, and close, more business, these services are a tremendous aid not only to plan intermediaries, but plan sponsors and participants as well.

Whether its tools to analyze the performance and suitability of a plan administrator or Target-Date series, staying up to speed on the regulatory front, or enhancing the understanding of plan profitability, DCIO sales and marketing units provide tremendous amount of value to plan consultants. So, keep this in mind the next time you're filling out a plan menu. Saving a few basis points by switching from active to passive management may seem like the best move in the short-run, but at what cost in the long-run? Selling and supporting plan sponsors and participants requires a great deal of investment from a wide range of parties, and when there's only a couple left standing-a couple who are essentially giving away their services to win the business-there may be no one left to help you grow yours.

Chris J. Brown,
Founder and Principal Sway Research

For more information about Sway Research, visit

blog retirement income chart


Fiduciary Regulations and Technology

Anticipated revised proposed regulations may not be workable

An extensive discussion of the fiduciary rules proposed by the U.S. Department of Labor (DOL) was a highlight of day two of the semi-annual meeting.  Members in all colleges engaged in the discussion of the upcoming announcement of revised rules.  Many expressed concern that new rules may limit options for sponsors and participants.  Participant education, participant counseling, asset gathering, asset retention, retirement counseling, and even the mention of an investment option may automatically qualify the plan advisor, and perhaps also the plan service provider as a fiduciary to the plan and to the participant.  These limitations are poised to impede client service.

In particular, rules may reduce the availability of participant education and communication materials, as it is expected that any mention of a “product” such as a fund name will automatically trigger the new fiduciary definition.  What’s more, some anticipate the DOL will require compliance with the new rules within eight months, a compressed schedule that is just not feasible to change hundreds of thousands of plans.  Two years is needed if most plans need new contracts.  That is a costly and time-consuming endeavor.

Technological innovation enhances Advisor effectiveness

Plan Advisors typically have access to tremendous amounts of data about client plans, participants, and investment markets.  However, there is only so much information clients can absorb to support decision making.  For this reason, plan advisors need to determine the most important data sets and how to leverage these data points in client conversations.  Simply put, advisors need to determine how they want to convey information, and—more importantly—what sponsors and participants want and need to see to support decision-making.

Advisors, plan sponsors, and their participants can also benefit from convenient video conferencing solutions. Video solutions provide scale and greater geographic reach.  Video conferencing personalizes the individual on the other end of the phone, and compels both presenter and audience to be much more attentive to the content.  The technology to leverage video conferences, save big money on travel, and streamline business is increasingly available, convenient, and reliable.  Video conferencing is just one of the many solutions enhancing plan effectiveness. Mobile technology (tablets and handheld devices) is another area of innovation enhancing effectiveness.  The bottom line is that “user experience” is all about presenting people with the information they need in the format they prefer, when and where they need it. Advisor success hinges on the ability to understand the needs of the audience before preparing tablet or paper reports for the next meeting. In many cases, a video conference can be just as effective as an in-person meeting.

Technological innovations that impact Advisor effectiveness also encompass a wide variety of social media.  Compliance requirements are often a challenge for Advisors seeking to leverage social media to enhance effectiveness.  To get started, an Advisor may act as a ‘net consumer’ of social media (think “read only” rather than active posting), and simply listen before joining the conversation.  A series of Google Alerts with words and phrases to follow companies, stocks, or even topics is a good way to start and be notified instantly or, receive a daily email digest of happenings.  One suggestion is to track all of client sponsors and prospects.  Updates about the competition and industry help as well.  Other programs that aggregate listening (or posting) include Hoot Suite and Social Mention.  

Closing thoughts

Council activities are not limited to in-person meetings.  Meetings are the source of ideas and initiatives, but activity extends to conference calls, committees, public relations campaigns, research, comments to regulators, maintenance of the advisor search RFP template, and others needed to support enhanced retirement outcomes for working Americans.


Department of Labor Expected to Issue Revised Conflict of Interest Rule in March 2016

Next month, the DOL is widely expected to issue the revised copy of its proposed rule seeking to redefine the term "fiduciary" with a focus on conflicts of interest. The rule aims to eliminate conflicts of interest and to establish a fiduciary standard with participants’ best interests at heart. The initial proposal was revolutionary in a number of ways. In addition to attempting to establish an overall fiduciary standard, the bill also proposed language that may require the plan advisor and the service provider to act as fiduciaries if investments were mentioned. This in turn may impact employee education and communication.

The main objections are that small employers, who typically buy retirement plans through broker/dealers, will have limited choices because the cost of compliance with the rules (best interest contract) will reduce the number of advisors who are able to offer these services. Those who are still able to offer retirement plan guidance will likely reduce the amount of investment education and communication for participants.

Not all the news is negative. The rule presents an opportunity for registered investment advisors and investment advisor representatives who are entirely dedicated to offering retirement plans. The challenge for them may be in the level of fiduciary responsibility that comes from gathering assets from outside plans. Other challenges include:

  • Participant Education – if investment information is referenced the advisor or provider could be considered the fiduciary
  • Advice – any investment solutions offered specifically for use in retirement plans may be considered advice which would be subject to different guidelines
  • Product information – Product information or allocation information may be considered advice which would only be available from the fiduciary

All of these issues may result in the emergence of entities – spun off by service providers - entirely dedicated to communication, education, and advice of retirement plan participants which could be compensated with a flat fee-for-service arrangement.

In the end this may drive further consolidation of retirement plan recordkeepers and undoubtedly reduce coverage. Two bills were introduced in the house in December that would establish a “best interest” standard for advice given to qualified plans and IRAs. They would block the DOL from amending the existing definition of fiduciary while adopting many of the proposed DOL changes, but adoption by both chambers is unlikely.

We will continue to keep you apprised of the latest developments and we will dedicate time at the annual meeting in June to discuss the status. In the meantime, be ready to flex your business model!!


Update From The White House 2017 Budget Package

President Barack Obama released his 2017 proposed budget on February 9. Among the $4.1 trillion dollar initiatives were two pieces of funding that could impact the retirement community.

  1. The budget proposes to double the SEC's funding for regulation of investment advisors as the SEC considers shifting resources from broker examinations to investment advisor examinations. The proposed budget increase would allow the SEC to hire more examiners who would conduct advisor exams. Today, the SEC examines about 10% of RIAs. The increase would bring that percentage up to 12%. By comparison, FINRA and the SEC are able to examine more than 50% of all brokerages registered with FINRA at roughly once every two years, compared with one every 10 years for advisors.
  2. The budget proposes to limit the amount of money that can build up in a tax-favored retirement account to $3.4 million. This is not a new addition to the budget as it has been proposed in the past, but industry experts worry that this type of thinking could lead to changes in retirement accounting at a time when American retirees are underfunded to begin with.

The 2017 budget is in for a tumultuous journey in this election year. Considering that the 2016 budget did not get passed until close to the end of 2015, it is likely that this budget will not be taken seriously until after the elections in November, 2016. More updates on this budget will be posted as they surface.


Semi-Annual Meeting Addresses Retirement Advisor Practice Technology Trends

At the Semi-Annual Meeting hosted by LPL Financial in sunny San Diego, CA, the Council dug deep into the issues facing retirement plan advisors in 2016.  This meeting’s theme - The Wild, Wild West…A Moving Frontier for Retirement Plan Stewards - captures the sentiment shared by many advisors that the industry is evolving at a fast pace. Getting together live provides attendees with the opportunity to share directly with their peers and compare experiences with plan providers, investment managers, practice leaders and others in the industry.

The Council has grown to include 89 financial advisors, 12 retirement practice leaders, 10 recordkeeping service providers, and 14 investment management firms who each bring a unique perspective on retirement plans. The collegial mix makes for lively panel discussions, breakout peer groups, and one-on-one exchanges. Following is a brief description of the most prominent topics and discussion points from the meeting’s first day:

“Independent” Advisors Advance

The role of Registered Investment Advisors (RIAs) in the Retirement Plans space continues to grow.  Many plan sponsors appreciate the independence of an RIA who does not have ties to a specific retirement plan provider, investment manager, or insurance company.  Advice from “independent” Advisors is perceived as unbiased.   One speaker pointed out RIAs have created 10,000 job opportunities and bring to the market a sense of independence, opportunity, and a level of client service in high demand among plan sponsors. Going one step further, opportunities for RIAs abound at the participant level.  Managed accounts represent only a small portion of retirement plan assets and a whopping $23 trillion sit outside managed accounts.  

Rise of the Machines

Are plan advisors competing with Robo Advisors?  Robo advisors - automated investment advice vehicles - are gaining popularity particularly among members of Generation Now, but cannot replace the sentient touch of a living advisor who can take more into account than a simple program or algorithm can.  Advisors continue to educate plan sponsors about their value and need to constantly demonstrate how much farther the personal touch can go when competing against automated solutions.

A Holistic Approach to Employee Finances

Plan sponsors are asking for more when it comes to employee education.  Financial wellness is gaining popularity as a discipline, covering employer-sponsored retirement plans and education about consumer debt, savings outside of an employer plan, and anything that can impact employees’ overall financial future. Other topics include estate planning, tax planning, and how to be a prudent consumer.

Retirement By the Dashboard Light

Plan sponsor thirsty for knowledge about their retirement plans is not easily quenched, but many refuse to drink from the fire hose.  As an alternative to the voluminous 50-page reports offered by some plan providers and advisors, sponsors are asking for simple “Dashboard” reports.  These can illustrate the state of their retirement plan at a glance: plan performance, plan health, investment fund indicators, or any number of topics.  Sponsors are asking for an easy-to-read summary aka dashboard, and also the ability to drill down to a deeper level if they want more info about anything shown at the highest level.

“Kids” Today

The younger generations will become the wealth holders of tomorrow. For this reason, many advisors focus their attention on reaching clients while they’re still young.  This next generation, dubbed Generation Now is described as those who are 30-45 years old now.  There’s a myth that younger folks just want everything online, but when making financial decisions they almost always go back to mom and dad (take that, Robo Advisors).  
This group currently control $3.5 trillion in investable assets, but by 2050 they will likely be the beneficiaries of $16 trillion in wealth.  This group will control the lion’s share of investing in the future. To attract younger clients, firms are exploring:  lowered asset minimums, bringing younger advisors in to help them connect with younger clients, and integrating the latest technology.

Show, Don’t Tell

Providing clients and prospects with case studies is an excellent way for plan advisors to demonstrate the value they’ve brought to other clients, especially when the case-in-point client shares characteristics of the client or prospect the advisor is hoping to impress.  The advisors at the conference who’ve used case studies uniformly tout the benefit of providing this kind of detailed ‘proof’ to clients of both their capabilities and client successes. The Council currently features two case studies on the website, with several more to follow in 2016 representing the broad range of Advisors in Council membership.


Make Your Participant Education Efforts More Successful

Over the past quarter-century, plan sponsors, their advisors and retirement plan recordkeepers have invested hundreds of millions of dollars to educate the workforce about the benefits of participating in a 401(k) plan. However, despite these extensive efforts, the results have yet to substantially improve the retirement readiness of working Americans. Why?

One reason is that they have failed to consider the financial literacy needs of employees as well as their level of financial stress, and the two go hand in hand. If employees don't do basic budgeting, then they may never be financially healthy enough to be able to save money regularly and ramp up these contribution levels over time.

When creating an effective financial education curriculum for your plan participants, get back to basics: Make sure you meet the basic financial literacy needs of plan participants. Here are some key elements of financial literacy to include:

1 – Think and act long term - Like taking a healthy long-term approach to diet and exercise, financial success comes to those who incorporate healthy habits into their lifestyle rather than opt for the latest crash diet or gimmicky exercise fad. Teach participants how to create a long-term strategy in support of life-long goals as well as how to track monthly spending and income. This can help them free up money that could be channeled towards those big, potentially daunting goals.

By getting participants to focus on the big picture, you can help them resist such dangerous distractions as chasing hot-performing investments and overreacting to short-term market "noise."

2 – Time is on their side - Participants need to know that one of their most powerful allies is time. Starting at age 25 can make things so much easier than waiting a decade and having to play catch-up. For example, by saving $5,000 a year at an annual return of 6%, a 25-year-old could hypothetically accumulate $820,238 by age 65, a 40-year span of compound earnings. Even if the individual stopped contributing new money after age 35, he would have $69,858 after 10 years, which would then grow to $401,229 without adding a single dollar afterwards.

Compare this with the cost of waiting 10 years. A 35 year old contributing the same amount over the remaining 30 years to age 65 would accumulate $419,008. The cost of waiting the 10 years to begin to contribute to retirement savings is $401,229. Another way to look at this is that the person who contributed from age 25 to 35 would end up with more than $400,000 by saving just $50,000, while the one who saves $150,000 over the remaining 30 years would end up with about the same amount. Who would get more bang from their savings buck?

These types of illustrations can bring home to young plan participants how important it is to contribute now and not wait a moment longer.

3 – Understand investing basics - Participants don't need to be sophisticated investors, but they do need to know the basics. They should be comfortable with asset allocation, comparing investment performance with the right benchmark, knowing the difference between actively managed and passive investments, understanding mutual fund expense ratios, and emphasizing long-term performance over short-term returns.

By helping participants understand the basic building blocks of investing, you can help to empower them to make their own investment decisions and to be able to track their fund and portfolio performance against the relevant benchmarks, rebalance their asset allocation as needed from time to time, and monitor their progress towards their retirement savings goals.

4 – Beware the pitfalls of plan loans and in-service withdrawals - One important area where we need to do a better job is in educating participants about the dangers and costs of plan loans and in-service withdrawals as well as the long-term costs of cashing out of a plan rather than rolling it over and keeping it in a tax-deferred account when they leave a job.

The pitfalls include opportunity costs of lost potential earnings when the money is absent from the account and not generating compound returns as well as potential taxes and penalties if permanently withdrawn or owed when an employee leaves a place of employment.

The costs to our society of having a generation of workers who aren't financially ready to retire when they arrive at retirement age could be devastating. The costs to individuals who can't afford to retire or who have to make serious financial sacrifices through retirement can be heartbreaking. We need to work together to make sure that doesn't happen. We simply need to do a better job educating our plan participants.

Contributors: Charlie Avallone, Jason Chepenik, Mike Kane, Deb Rubin, Sharon Schmid, Jamie Worrell


Let’s Make Financial Literacy A Prerequisite to Graduating High School


This nation's financial literacy statistics are startling, as are the consequences.

  • The U.S. ranked 27th of 28 countries for this question in the 2012 Global Financial Literacy Barometer: "To what extent would you say teenagers and young adults in your country are adequately prepared to manage their own money?"
  • Seven in ten respondents to the survey believe that U.S. teens don't understand money management basics.
  • Three-quarters of teens believe the best time to learn about money management is in kindergarten through high school. But only three in ten say programs are currently in place.
  • At this point, only one-third of states - 17 states to be exact have a form of mandatory financial literacy K-12 education 

This is all stark evidence that we desperately need more comprehensive and mandatory financial literacy. Teenagers and young adults need to learn basic financial literacy skills, including saving, budgeting, and credit management, so they can take on the many financial challenges that await them.

So, what's the answer? While workplace education on money management and retirement planning are important, so much more needs to be done at an earlier age. We need to educate our young people BEFORE they enter the workforce –– before they're earning and managing (or mismanaging) their money. We have to do a thorough job of equipping high school students with practical financial life skills.

Fortunately, vital financial education is being shared through several popular programs targeted at our youth. These include:

Boys & Girls Club: This service organization has a "Money Matter$" program for 13 – 18 year olds. Teens learn financial responsibility and independence by learning how to manage a checking account, balance a budget, save and invest, start a small business and pay for college. Money Matters

Junior Achievement: This national organization is a leader in promoting workforce readiness, entrepreneurship and financial literacy through hands-on programs. JA Personal Finance 

Jump$tart Coalition for Personal Financial Literacy: This national non-profit coalition seeks to educate and prepare U.S. youth for life-long financial success. Jump$tart

Make a Difference Wisconsin: This statewide program provides financial literacy programs and resources that empower children to make sound financial decisions.

Credit for Life: This intense, practical program of Boston College High School has received rave reviews. In a single day fair, hundreds of students receive in-depth exposure to financial literacy with a focus on budgeting and saving through 401(k) plans. Credit for Life

For that one day, each high school senior gets to choose an occupation. Then, based on official Bureau of Labor Statistics data, they each receive an annual income and are assigned a certain amount of student debt and a random credit score. With that information and the resultant opportunities and restrictions, they make real-life types of decisions about their retirement plan, loan payments and the costs and merits of buying every-day items.

For example, students have to weigh choices of apartment rentals, car purchase, insurance, utilities, cell phone plans and how much they're able to set aside and save in their simulated monthly budgets. There's even a reality-check station where, like a game of Monopoly, they might get a Fortune card that says: "Speeding ticket – $150" or "You've inherited $500." So, it's educational and fun. And like life, it can be unpredictable.

Throughout the day, students learn the basics of financial management through a series of quick, 15-minute workshops, including a 401(k) information session. That drives home the message that all workers are responsible for their own retirement, and starting sooner can make a big difference.

At Boston College High School last year, the level of engagement among seniors was very high. They actively sought help, asking plenty of follow-up questions to program advisors. The retirement saving and investing booth was among the most popular.

Make Financial Literacy Mandatory

These are wonderful programs. We're moving in the right direction. But we need more. We need mandatory financial literacy as part of the high school curriculum. Let's push to triple the number of states that require it, from the current 16. If students in Ohio and New Jersey must be financially knowledgeable when they graduate from high school, why should students in Wisconsin and New York State, for example, be denied that vital skill?

We all know about the sorry state of financial preparedness in our society and our workforce. Too few people are successfully managing their monthly budgets and financial future. Let's do something meaningful and far-reaching. Let's make financial literacy mandatory.

What can YOU do about it?

First, find out if local schools are doing anything like this. If not, find out who could be a good resource to help set one up.

Second, volunteer to help plan such an event and to make financial presentations that will help equip today's students for a lifetime of financial success. Ask your financial advisor how s/he will support the event.

Third, contact your state officials, particularly the secretary of education, to push to make financial literacy a mandatory requirement within the high school curriculum.

Financial literacy: We can all pay it forward. Let's start today.

Contributors: Tom Hoffman  - Sharon Schmid - Jason Chepenik Financial Literacy Committee


Help Improve Financial Literacy Among Working Adults

Although Americans are being asked to bear more responsibility for their retirement, many lack the financial literacy skills or interest to answer the most vital questions, such as: “How much should I contribute? In what options should I invest? How much money will I need in retirement? And how will I manage the many financial risks I’ll face as a retiree?”

Solutions to the retirement readiness challenge usually take one of two directions: the improvement of education or the implementation of automated features in retirement plan design. Globally, myriad solutions have emerged: from mandatory participation in an employer’s defined contribution (DC) plan to auto-enrollment of employees into the DC plan, to voluntary DC/DB (defined benefit) and hybrid elements.

Plan design is critically important, but it won’t address the broader societal problem of poor financial literacy. The shifting risk from DB to DC — from employers to employees — shines a spotlight on a far greater problem than the retirement readiness challenge: basic financial illiteracy.

Workplace initiatives needed
We need to improve the financial literacy of working adults. Essential efforts are already being made to improve financial literacy among students, but we also need forward-thinking initiatives specifically designed to help our current workforce make better financial decisions. This applies to retirement planning and saving as well as other aspects of financial life. The two phases in everyone’s financial life –– retirement and non-retirement –– while seemingly distinct, affect one another profoundly.

For instance, workers who use payday loans are less likely to contribute to their retirement plans. How can we expect our messages to succeed in directing plan participants to boost their retirement contribution levels when young adults typically enter the workforce saddled with student loan debt? And how can those messages lead to the desired behaviors when plan participants don’t have a solid grasp of financial planning and budgeting concepts?
Many employees need help just to understand budgeting basics, which is fundamental for their current and future financial well-being. How can individuals be expected to set aside enough money to save properly for retirement, or manage their money in retirement, when they haven’t mastered how to make sure that income spent each month doesn’t exceed income earned?

Adults need guidance on how to gain control of their monthly spending habits and how to confront our commercial world by determining wants versus needs.  
This lack of basic understanding and financial self-control has fed a booming payday loan industry that, as noted above, presents an obstacle to broader retirement plan participation.

We need to do more to help our workers understand and manage all aspects of their finances better. That’s a crucial first step in helping to improve retirement readiness and promote successful lifelong personal financial management.

Look for continuation of this blog series discussing adult financial illiteracy.  We welcome you to share your ideas for better financial futures.

Contributors: Charlie Avallone, Jason Chepenik, Mike Kane, Deb Rubin, Sharon Schmid, Jamie Worrell


Tautology of the Miser

Drafting comments to the Department of Labor over the last month, I reflected on the factors that might have inspired sensible regulators to be so focused on price as to conceive the idea of a guide to accompany lengthier 408(b)(2) disclosures.   I have come to the conclusion that the culture of Cheap that has become dominant since 2008 is partly to blame.  Necessity has brought millions to share the belief that cheap is good.  Eager to cater to an audience struggling with declining personal incomes, opinion leaders in the media and policymaking circles reinforced the notion in articles, public speeches, blogs, and social media posts.  The show Extreme Cheapskate televised on TLC epitomizes the cultural wave.  Imbued by the dominant culture, many American workers accept it as self-evident that cheap is good. 

To some extent, the retirement plans industry benefits of cheapskates’ rise in popularity.  The allure of conspicuous consumption impeded babyboomers’ ability to achieve retirement success en masse.   When tightwads are hip and saving is in, money flows to retirement coffers more readily.  Millennials appear on track to achieve retirement success in greater numbers.  It behooves the industry to make this trend a lasting one.  However, it is important that we not get enitrely caught up in the cultural trend.  Cheap comes at a price.  Often, cheap is in bad taste; or cheap breaks down easily.   There are reasons why employers should not buy their retirement plan services on Craigslist or at the Goodwill store.  Plan fiduciaries have an obligation to ensure compensation paid for services provided is reasonable, but they also must act prudently in the interest of participants. 

Emphasizing cost and downplaying benefits in the content of disclosures affects plan sponsors’ choice architecture at the detriment of American workers’ retirement success.  A retirement plan decision maker’s obsession to achieve everyday low cost can affect retirement readiness in undesirable ways.  The urge to cut corners may lead to reductions in services such as participant counseling or in-person plan reviews that undermine the effectiveness of the national retirement system.  Keeping policy makers (regulator or lawmaker) and decision makers (plan sponsor, committee member, advisor, legal counsel, service provider, or investment manager) focused on acting with prudence is critical to the integrity of the system.