The Value of a Professional Retirement Plan Advisor

Transcription

1 The Value of a Professional Retirement Plan Advisor

2 Study Sponsors This fundamental research was made possible thanks to the financial support of: For permission to quote or distribute any portion of this report, please contact one of the study sponsors: Fidelity Investments Adrian Hodge (800) Franklin Templeton Investments Brian Schweitzer (610) John Hancock Investments Aaron Esker (617) MFS Investment Management Bill Loesch (617) MassMutual Financial Group Steven LaValley (860) Principal Financial Group Ryan Schutty (515) Transamerica Retirement Solutions Grace Basile (914) Credits: The Value of a Professional Retirement Plan Advisor, a fundamental research study sponsored by Fidelity Investments, Franklin Templeton Investments, John Hancock Investments, MFS Investment Management, MassMutual Financial Group, Principal Financial Group, and Transamerica Retirement Solutions for the benefit of the Retirement Advisor Council, EACH Enterprise LLC,

3 Table of Contents Study Sponsors...2 Introduction...4 Advisor Business Models...4 Three Segments in the Professional Retirement Plan Advisor Universe...7 Retirement Readiness...10 Advisors that Work Exclusively with Retirement Plans...11 Professional Advisors Do More for Their Clients...14 Professional Retirement Plan Advisors Do an Outstanding Job for Clients. 15 Professional Advisors Benefit Plan Sponsors in Many Ways Professional Advisors Enhance Participant Retirement Outcomes...17 Professional Advisors Help Boost Contribution Levels...18 Benefits Segment...20 Emphasis on Employee Education and Communication Fee Benchmarking...22 Benefits Investment Segment...24 Investment Array Management Retirement Readiness...28 About the Research...31 Conclusion

4 Plans partnering with a Professional Retirement Plan Advisor achieve superior participant outcomes in terms of retirement readiness and contribution levels. Introduction This report discusses the benefits of partnering with a Professional Retirement Plan Advisor for defined contribution plan sponsors and their participants. Based on findings from a survey of 400 plan sponsors with 100 or more employees, this study provides evidence that plans partnering with a Professional Retirement Plan Advisor achieve improved participant outcomes in terms of retirement readiness and contribution levels. We define Professional Retirement Plan Advisors as Advisors who work primarily or exclusively with retirement plans. Retirement readiness has recently received a great deal of attention. Indeed, employees retirement success helps control the number of elderly employees, manage the cost of health and welfare benefits, control disability and workers compensation claims, and reduce the stress of absence management. Retirement readiness is a critical component of financial wellness programs that ultimately help lower costs and enhance employee productivity and workforce competitiveness. Study findings suggest the implementation of clever plan design features, combined with the distribution of planparticipant retirement readiness reports, participant retirement readiness alerts, and aggregated plan-level reports are among the techniques Professional Retirement Plan Advisors commonly deploy to help client plans and participants achieve retirement success. There is plenty of choice for sponsors seeking to hire a Professional Retirement Plan Advisor. The population is quite diverse, with business models to serve a broad range of plan needs and workforce characteristics. Hiring a Professional Retirement Plan Advisor is critical to plan success; homing in on a Professional Retirement Plan Advisor with a business model that matches the needs of your organization will make the relationship even more productive. This report supplements the Executive Summary posted on the website of the Retirement Advisor Council at It is designed for sponsors and Advisors eager to understand the implications of the study findings and apply them to their particular situation. For insights beyond this report, we urge you to contact the sponsors of the research; they have the entire body of research at their disposal and can help you to interpret findings. Advisor teams develop practices and a business model specific to the profile of clients they serve. Advisor Business Models There are many segments within the Professional Retirement Plan Advisor community. Advisor teams develop practices and a business model specific to the profile of clients they serve. A given team may emphasize one particular facet of retirement plan management to accommodate frequent client requests, and another team may be emphasizing another aspect of the business. Practices may differ in terms of: Participant education, communication and counseling services Scope of fiduciary services Approach to Qualified Default Investment Alternatives in the investment policy Compensation mix / mode 4

5 Business affiliation Other factors Some Advisors take a lead role in participant education, communication and counseling; others coordinate and facilitate the provision of these services from the plan provider, and leverage best practices across the Advisor s book of business. If it is important that your participants have access to an Advisor to meet in groups or one-on-one to discuss investments and retirement savings goals, you will want to direct your search to Advisors who deliver these services. Figure 1 - The business models of Professional Advisors can vary considerably depending on the emphasis placed on five different practice areas Advisors also differ in the scope and nature of their fiduciary support services. The Advisor s function here may range from assisting in designing and implementing the ERISA fiduciary process to serving as an ERISA plan fiduciary across functions. Their standard investment policy and specifically the approach to Qualified Default Investment Alternatives (QDIA) in the investment policy is another area where Professional Retirement Plan Advisors differ. For instance, some advocate the use of custom asset allocation models, while others prefer to select a target-date-fund family first, and then to select a service provider given the target-date fund family. Compensation mix and mode is another factor differentiating Advisor practices. How do you prefer to compensate your Advisor? What is the right mix of the following: hourly or project-based compensation, flat quarterly or annual retainer, percent of plan s assets? What balance do you want to strike between Advisor compensation supported by plan assets, and Advisor compensation born by the plan sponsor? Are you looking for a specialized Plan Advisor with a firm that also has a wealth management affiliate? Are you looking for a specialized Plan Advisor with a firm that also has a health and welfare benefits affiliate? Do you prefer a stand-alone Plan Advisor with no affiliate of any sort? Do you require a specialist who can provide Defined Benefit and Non-Qualified Deferred Compensation services? Your preference for one or the other business model depends on the facts and circumstances of your plan. 5

6 In focus group discussions with 14 plan sponsors, 50% selected their Professional Retirement Plan Advisor primarily on the first of the five factors mentioned above: The role of the Advisor in participant education, communication and counseling. This is not to say all plan sponsors have the same preference in this one area: some plan sponsors are looking for more support than others. The other 50% of plan sponsors based their decision primarily on one of the other four factors differentiating Advisor business models examined in our study. This report focuses on the business affiliation segmentation dimension, providing information about Advisors entirely dedicated to retirement plans, those with an investment bent, and a third segment with a benefits bent. Our study found that over 65% of the plans have conducted an RFP search for an Advisor for their plan within the last ten years. Figure 2 Type of Advisor (% of all plan sponsors) The plan sponsors who took part in this study partner with Advisors who work with retirement plans to varying capacities. Of the plans that partner with an Advisor, some have an Advisor who works only with retirement plans. Some have an Advisor who works primarily with retirement plans, but has other types of clients as well. And some have an Advisor who does some work with retirement plans, but retirement plans are not his/her principal business focus. A total of 407 plan sponsors responded to the survey. Of these, 333 (82%) retain the services of an advisor, and 74 (18%) do not. Ninety-four (23%) partner with an Advisor who works exclusively with retirement plans, 156 (38%) partner with an Advisor who works primarily with retirement plans Over 80% of plans who partner with an Advisor entirely dedicated to retirement plans have worked with their current Advisor for at least five years. Strong accomplishments undoubtedly play a role in the length of relationships. Another factor is the standard use of a formal RFP process to select a Professional Retirement Plan Advisor. Our study found that over 65% of the plans have conducted an RFP search for an Advisor for their plan within the last ten years. When asked to describe the Advisor or consultant with which they partner, nearly half of those with an Advisor or Consultant (47%) identify the individual as an Investment Advisor. Investment Consultant and Benefits Consultant are respectively the second and third most common descriptors. 6

7 Figure 3 Distribution of plans by Advisor description (% of plan sponsors with an Advisor) Seven out of ten plans retaining an Advisor or consultant describe the person as an investment consultant, investment advisor, or securities broker. An additional 21% describe their Advisor as a benefits broker, a benefits consultant, or an insurance agent. Although the survey asked plan sponsors to identify their Advisor as one or the other, these categories are not mutually exclusive from a licensing standpoint. For instance, a Registered Investment Adviser or Securities Broker / Dealer representative may also hold an insurance license that allows him or her to offer group insurance products should s/he choose to develop a benefits business model. In practice, many Retirement Plan Advisors hold multiple licenses and registrations but operate primarily as one of the categories identified in the questionnaire. Three Segments in the Professional Retirement Plan Advisor Universe This narrative report explores three segments of the Professional Retirement Plan Advisor universe: 1. Advisors who work exclusively with retirement plans; 2. Benefits brokers, benefits consultants, and insurance agents who work either primarily or exclusively with retirement plans (the Benefits Segment ) ; and 3. Investment consultants, investment advisors, and securities brokers who work either primarily or exclusively with retirement plans (the Investment Segment ). These three segments overlap to some extent. Indeed, nearly all plan sponsors who work with an Advisor entirely dedicated to the retirement plans business rely on an Advisor of the Investment segment or the Benefits segment. Many services offered are identical across segments. These segments differ primarily in terms of business model. 7

8 Figure 4 Plan sponsors by Advisor segment (% of plans with an Advisor) Advisors working exclusively with retirement plans demonstrate expertise in all areas of retirement plans, from implementing the fiduciary process with the plan sponsor to delivering guidance to participants on the plan. Clients of Advisors in all three segments laud their Advisor for a commendable job; however, each has its own particular strengths. Areas of differentiation may make one model more appropriate than the other two for your organization. Advisors working exclusively with retirement plans demonstrate expertise in all areas of retirement plans, from implementing the fiduciary process with the plan sponsor to delivering guidance to participants on the plan. Advisors in the Benefits Segment demonstrate strength in their dedication to plan participants. They tend to be pro-active in benchmarking fees, offering one-on-one retirement plan guidance, and convincing participants to take advantage of employee education sessions and to access their account on the service provider website. Their experience with benefits open enrollment may be a contributing factor. While Advisors in the Investment Segment clearly understand all aspects of retirement plans, our survey found their expertise in investment array construction and management shining bright. They are persuasive in implementing investment policy statements and valued for their role in reviewing the investment options and helping the plan sponsor understand service provider and investment management fees. Plan sponsors who rely on a plan Advisor in the Investment Segment outnumber those in the Benefits Segment by three to one. The study sampled plans with $5 million to $500 million in plan assets. Just 14% of plans in the sample have assets under $10 million. It would be incorrect to assume Professional Retirement Plan Advisors are not active in the small plan market; some Advisors specialize in large plans but many focus on the small employer market. Indeed, size is not the only factor driving the need for Advisor expertise. Characteristics of the workforce of smaller plan sponsors often accentuate the need for a specialized Advisor, and investment due diligence requirements are essentially the same across size bands. A large portion (44%) of clients of Advisors working exclusively with retirement plans have plan assets in the $50 million-$100 million range, but clients of Professional Retirement Plan Advisors in the Benefits segments are more heavily concentrated in the $10 million-$50 million plan asset size band. 8

9 Figure 5 Distribution of plans by asset size (% of all plans) The sample consists of private employers with 100 or more employees. Nearly 60% of survey respondents have fewer than 1,000 employees. Professional Retirement Plan Advisors are as likely to work for an organization with few employees as they are for one with thousands. Nearly 40% of clients of Advisors in the Benefits segment employ fewer than 500 employees. Figure 6 Distribution of plans by number of employees (% of all plans) 9

10 Advisors have made concerted efforts to ensure their client plans receive reports measuring retirement readiness and have endeavored to provide participants with indicators of individual preparedness. Retirement Readiness In recent years, service providers have invested a great deal of time and effort to develop retirement readiness reports at the participant level and at the plan sponsor level. When asked about the concept of retirement readiness in focus group discussions held late in 2012, plan sponsors unaided responses related to participant level reports. Two-in-ten reported seeing a report of retirement readiness at the participant level. A few monitored usage of participant level tools designed to help participants self-assess their retirement readiness. Astonishingly, none of the plan sponsors in these focus groups recalled receiving an aggregate report at the plan level, although many were intrigued by the idea and curious to know what such a report might include. We are not doing as much as we probably should. With current economic conditions, my department is not half what it was five years ago. We monitor all aspects of our Plan Statistics: contribution rate, loans, balance, investment allocation, etc. We have targeted communications. We also offer pre-retirement seminars for employees within five years of retirement. -Jim, publicly-held employer, GA, employees The government will push more employers to prepare their employees for retirement. Social Security is a big question. -Cheryl, privately-held employer, MN, employees Results of the survey of 407 plan sponsors conducted in 2013 paints a completely different picture among plans with Professional Advisors who work exclusively or primarily with retirement plans. Advisors have made concerted efforts to ensure their client plans receive reports measuring retirement readiness and have endeavored to provide participants with indicators of individual preparedness. As the focus of communication shifted to retirement readiness, strategic thinking regarding the most effective approach to help participants get there shifted. Plan sponsors and their Advisors appear to be dedicating less effort to communication and education, and more resources to plan design adjustments that boost participation levels and increase contribution levels. Automatic enrollment at higher deferral rates coupled with aggressive automatic deferral increases have become commonplace. If an organization does a superior job in preparing its employees financially for retirement, employees will be better able to retire in a timely manner. They will not remain with the organization into their later years when they may present an increased burden to the organization s costs. Employers would do well to do everything in their power to usher employees through to a successful retirement. We are already seeing the impact of the economy, and tax reform will hurt more. We ve got a lot of folks working past 65, and even Pam, not-for-profit employer, Pleasanton, CA, 1,000+ employees 10

11 Figure 7 Incidence of measurement of the overall retirement preparedness of plan participants (% of all plans) Advisors that Work Exclusively with Retirement Plans Only 23% of plan sponsors surveyed partner with a Professional Retirement Plan Advisor entirely dedicated to retirement plans. These Advisors stand apart for the range of services provided, client ratings, and success measures. Scope of service and expertise are such that 96% of clients rate their service very beneficial or better. More than a third (35%) agrees retaining the services of Professional Retirement Advisor is a necessity. Figure 8 Benefit of retaining a Professional Retirement Plan Advisor by segment (% of plan sponsors) Plans that retain the services of a Professional Retirement Plan Advisor who works exclusively with retirement plans skew to the large side in terms of plan asset size: Seventy percent have plan assets of $50 million or more. Clients of Advisors who work exclusively with retirement plans most often describe their Advisor as an Investment 11

12 Advisor or an Investment Consultant. Nearly four out of five plans that retain the services of an Advisor who works exclusively with retirement plans also retain a specialist advisor or consultant to assist with the administration of their health plan. Figure 9 Distribution by plan asset size (plan sponsor segments) Figure 10 Healthcare Benefits Advisors by plan sponsors segment (% of plan sponsors with an Advisor) 12

13 More so than others, organizations that partner with Advisors entirely dedicated to the retirement plans business include C-suite officers in the plan committee that makes investment array and plan decisions. At four out of five plans that have a committee, the Chief Financial Officer serves on the committee. If the CFO is not a committee member, a direct report frequently is. Similarly, at four out of five plans that have a committee, the Human Resources Officer serves on the committee. This involvement of the top brass shows how seriously these organizations take their fiduciary responsibility, and how Professional Retirement Plan Advisors can elevate the profile of retirement benefits in an organization. Committee composition is critical in many respects: it is an indicator of senior management support for the plan, it facilitates the exercise of due diligence, helps mobilize the proper resources for plan operation, enhances employee appreciation, and affects plan success metrics. Figure 11 Individuals personally involved in the plan committee (% of all plan sponsors) Professional Retirement Plan Advisors that work exclusively with retirement plans meet with their client plans more frequently than other Advisors. More than eight out of ten meet with the plan in person or via teleconference once a quarter or more often. Compare this to other types of Advisors, only two-thirds of whom meet with the plan once a quarter or more. Figure 12 Plan sponsors by frequency of meetings with Advisor (% of plans with an Advisor) Committee composition is critical in many respects: it is an indicator of senior management support for the plan, it facilitates the exercise of due diligence, helps mobilize the proper resources for plan operation, enhances employee appreciation, and affects plan success metrics. 13

14 Professional Advisors Do More for Their Clients Professional Retirement Plan Advisors who work exclusively with retirement plans do more for their clients. Nearly two-thirds of their clients rely on their Advisor to assist with the implementation of the fiduciary process, compared to less than half the clients of other Advisors. Approximately three in five rely on their Advisor to periodically review the plan s investment options, make plan design recommendations, support service provider due diligence, and meet with employees in groups to provide retirement plan education. Professional Advisors are especially active in meeting with employees one-on-one to provide retirement plan guidance. The majority of plan sponsors who retain a Professional Retirement Plan Advisor also rely on their Advisor to provide such services as: Meeting with employees one-on-one to provide retirement plan guidance Examining plan compliance with applicable laws, regulations, and stated policies Helping formulate an Investment Policy Statement Monitoring the fulfillment of services by retirement plan service provider Learning the circumstances and benefits philosophy of client organization Professional Advisors are especially active in meeting with employees one-on-one to provide retirement plan guidance. Well over half of Professional Retirement Plan Advisors working exclusively with retirement plans meet with employees one-onone, while only about one-third of other types of Advisors do so. In addition, the Advisor is usually the first point of contact in the event of problems with many plan services and functions, including plan administration, investment fund consistency with the investment policy statement, the fiduciary process and documentation, service provider performance, and participant education and communication. Figure 13 Plan sponsors by functions performed by Advisor (% of plan sponsors with Advisor) 14

15 Professional Retirement Plan Advisors Do an Outstanding Job for Clients Clients of Advisors who work exclusively with retirement plans hire their Advisor to perform more functions and are also more likely to say their Advisor does an outstanding job with these functions. Professional Advisors working exclusively with retirement plans do an outstanding job making plan design recommendations 71% of clients say so, compared to just 47% of clients of other Advisors. Three in five clients rate their advisor outstanding for periodic investment reviews and service provider due diligence. More than three out of four (77%) rate their Advisor Outstanding for monitoring the fulfillment of services by their retirement services provider. An Advisor can serve as an ERISA 3(21) fiduciary for one or more functions (e.g., the selection of investment options), serve as an ERISA 3(38) fiduciary for all plan functions, or limit his/her involvement to supporting the plan committee s fiduciary process. The degree of the Advisor s fiduciary oversight is at the plan sponsor s discretion. In earlier focus group discussions, plan sponsors expressed reservations about hiring their Advisor in a fiduciary capacity, preferring instead to hire their Advisor to guide the fiduciary process. Irrespective of the role the Advisor plays in the fiduciary process, over half (53%) of plan sponsors who work with Advisors entirely dedicated to the retirement plans business rate their Advisor outstanding for assistance with the implementation of the fiduciary process. Figure 14 Plan sponsors saying their Advisor does an Outstanding Job by service performed (% of plan sponsors with Advisor) 15

16 The fact that three out of five client plans say that Overall their Professional Advisor does an outstanding job is a tribute to the Advisor s expertise with plan design and investment options, due diligence regarding the service provider s obligations and deliverables, attention to employee education, and knowledge of the sponsor s fiduciary responsibilities. The assistance and reassurances a specialized Advisor provides ease the burden and give clients peace of mind. The fact that three out of five client plans say that Overall their Professional Advisor does an outstanding job is a tribute to the Advisor s expertise with plan design and investment options, due diligence regarding the service provider s obligations and deliverables, attention to employee education, and knowledge of the sponsor s fiduciary responsibilities. Not a single client of Advisors working exclusively with retirement plans said their Advisor could stand to improve overall, while 4% of clients of other types of Advisors maintained their Advisor Could improve and just 44% rated the Advisor outstanding. Figure 15 Advisor does an Outstanding Job overall (% of plan sponsors with Advisor) Professional Advisors Benefit Plan Sponsors in Many Ways The benefits of partnering with a Professional Retirement Plan Advisor who works exclusively with retirement plans are many. These advisors receive high marks for streamlining processes, keeping the plan sponsor s time spent on the plan to a minimum, keeping the plan in compliance with laws and regulations, and holding the line on fees charged by the service provider and investment managers. Many plan sponsors are overwhelmed by the burden of tasks, responsibilities and choices in administering their organization s retirement plan. More than 70% of clients of Advisors working exclusively with retirement plans contact their Advisor first if a serious problem or concern arises with plan administration. These Advisors are the contact of first resort for a host of other potential problem areas. The assistance and reassurances a specialized Advisor provides ease the burden and give clients peace of mind. Plan sponsors using Professional Advisors are able to dedicate time and energy to other corporate and HR activities they might otherwise neglect. 16

17 Figure 16 Plan sponsors who Strongly Agree with statement (% of plan sponsors with Advisor) Professional Advisors Enhance Participant Retirement Outcomes Service and comfort delivered to the plan sponsor is all well and good, but the mandate for plan sponsors is one of process and fiduciary responsibility. Increasingly, plan sponsors are focusing attention on retirement outcomes for altruistic and corporate reasons. Sponsors want to know if participants are on the path toward retirement readiness, because successful retirement of older workers is in their best business interest. This study provides evidence clients of Professional Advisors are better served than others when it comes to retirement readiness reports: 59% have received a report at least once compared to 30% of plans with no Advisor. Armed with this information, plans are in a better position to take action and enhance outcomes for their workforce and for their business. Business benefits might include increased workforce productivity, lower health and welfare benefits cost, and ultimately enhanced competitiveness for the firm. Sponsors want to know if participants are on the path toward retirement readiness, because successful retirement of older workers is in their best business interest. Figure 17 Incidence of plan-level retirement readiness reports (% of plan sponsors with Advisor) 17

18 Professional Retirement Plan Advisors working exclusively with retirement plans also take the initiative to let participants know the state of their retirement preparedness. More than nine in ten clients (92%) provide their participants with an indicator of their retirement readiness. Following the receipt of aggregated plan-level reports, 87% of clients of dedicated retirement plan Advisors take action to enhance outcomes after measuring the retirement readiness of their participants. As a for instance, in the last two years, 60% have implemented automatic enrollment of new employees and as many have changed the employer contribution formula. 83% of clients have seen average employee deferral rates improve over the last two years, with onethird reporting that their deferral rates have increased 6% or more. Professional Advisors Help Boost Contribution Levels As another example of the concrete benefit of hiring an Advisor specialized in retirement plan, 83% of clients have seen average employee deferral rates improve over the last two years, with one-third reporting that their deferral rates have increased 6% or more. It is nothing short of remarkable that nearly 75% of plans that partner with a Professional Retirement Plan Advisor have experienced participant deferral increases of 4% or more over the last two years. Only 47% of plans working with other types of Advisors can claim so and just 30% of plans with no Advisor. The substantial deferral rate increase these plans have experienced is exactly what is needed across all plans to solidify the retirement security of US workers. The deliberate changes Professional Advisors are able to instill among clients are exactly what are needed to make the system work. Figure 18 Plan sponsors whose Advisor provides services leading to retirement readiness (% of plan sponsors with Advisor) 18

19 Figure 19 Plan sponsors by size of deferral increases experienced in the last two years (% of plan sponsors with Advisor) Deferral increases and enhancements in retirement readiness are means to an end. Helping as many American workers as possible achieve retirement success is the goal all Professional Retirement Plan Advisors share, and they do make a difference for the entire sector. More than three in four clients of Professional Retirement Plan Advisors say that 50% or more of participants are on track to achieve a successful retirement. Professional Retirement Plan Advisors have the skills and knowledge needed to enhance the effectiveness of the US retirement system. At more than three in four clients of Professional Retirement Plan Advisors, 50% or more of participants are on track to achieve a successful retirement. Figure 20 Plans with 50% or more of participants on track to achieve a successful retirement by segment (% of plan sponsors) 19

20 Their attentiveness to participant needs, particularly participant education, is a strong suit for Advisors in the Benefits Segment. Benefits Segment The Benefits Segment consists of Advisors who work primarily (or exclusively) with retirement plans, and whom plan sponsors describe as a benefits consultant, benefits broker, or insurance agent. These retirement plan specialists may be affiliated with a large benefits brokerage or benefits consulting firm where other staff handle health and welfare benefits. Just over one-fifth (21%) of plan sponsors who partner with an Advisor rely on an Advisor in the Benefits Segment. Clients most often describe their Advisor as a Benefits Consultant; six in ten say their Advisor works primarily but not exclusively with retirement plans. Privately held firms, smaller employers with a staff of 100 to 499 and plan assets between $10 million and $50 million are more likely to rely on Advisors in the Benefits Segment. More often than not, clients of these Advisors rely on a committee that meets regularly to make plan decisions. Figure 21 Advisor description (% of plan sponsors partnering with an Advisor in the Benefits Segment) Emphasis on Employee Education and Communication The functions Advisors in the Benefits Segment are hired to perform, services and capabilities are sensibly the same as those offered by other segments within the Professional Retirement Plan Advisor universe. Among the few exceptions: more often than others, Advisors in the Benefits Segment are retained to meet one-onone with employees to provide guidance. More than half (54%) their client firms report Advisors in the Benefits Segment meet one-on-one with employees to deliver retirement plan guidance. One-on-one meetings may happen in the context of the annual benefits re-enrollment process that benefits firms often manage for client organizations. 20 The annual benefits re-enrollment process may involve a combination of an annual benefits fair, in-person meetings, paper communications, or an online enrollment path. In some cases, Advisors present at the annual benefits fair. The online benefits enrollment path is sometimes structured to include a retirement benefits module prompting employees to enroll in the plan if they have not already. The module could also invite enrolled participants to ramp up their contribution level a notch. Pre-populating the online benefits enrollment with default values is an attractive

21 option for sponsors that do not wish to amend their plan with automatic enrollment or automatic deferral increases. Some online enrollment paths employ an avatar to simulate personal interaction as participants are guided through the process. Figure 22 Incidence of one-on-one employee meetings for retirement plan guidance by segment (% of plan sponsors with Advisor) Their attentiveness to participant needs, particularly participant education, is a strong suit for Advisors in the Benefits Segment. Participants usage of services at client firms stands out in many respects: 28% have used one-on-one participant advice (compared to an average of 18.7%), 24.3% have used online advice, and 41.6% have logged onto their account online (compared to an average of 32.4%). This service and the direct contact with participants do not go unnoticed by plan sponsors. The one-on-one meetings for us are really helpful. We do the group meetings but the individual focus is really appreciated by our employees. -David, publicly-held employer, Orem, UT, employees Figure 23 Participant usage of services by segment (mean % of participants using the service) 21

22 Fee Benchmarking While they may place a certain emphasis on plan benchmarking and participant services, Advisors in the Benefits Segment are no less likely to strive to alter plan design or boost contribution levels. Plan sponsors who partner with an Advisor in the Benefits Segment recognize their Advisor for an outstanding job in three areas besides retirement plan education: learning the circumstances and benefits of the plan, making plan design recommendations, and fee/service benchmarking. More than half have benchmarked plan fees and services within the last two years (versus fewer than three-in-ten among other plan sponsors). The cycle may be driven by the annual renewal of health and welfare benefits. The implementation of the Affordable Care Act has temporarily shifted plan sponsor attention to healthcare benefits, affecting the time and effort HR professionals and benefits consulting firms can dedicate to retirement benefits. However, we expect the emphasis will change after 2014, and retirement benefits become once again a major area of focus for Advisors in the Benefits segment. While they may place a certain emphasis on plan benchmarking and participant services, Advisors in the Benefits Segment are no less likely to strive to alter plan design or boost contribution levels. Figure 24 Most recent benchmarking of fees and services by segment (% of all plan sponsors) Benefits Partnering with a Professional Retirement Plan Advisor in the Benefits Segment helps plan sponsors on many levels. In many areas, the Advisor is the first person clients say they would contact in the event of a serious problem with the plan. Nearly 60% say they would turn to their Advisor first in the event of a problem with plan administration. Even for issues with investment fund consistency, one-third of clients would contact their advisor first, before they reach out to the investment manager or the recordkeeping service provider. 22

23 Figure 25 Plan Sponsors saying Advisor would be first person they would contact in the event of a serious problem (% of plan sponsors with Advisor) Ultimately, the best gauge of the success of Advisors in the Benefits Segment is ease of administration. Nearly half (46%) of their clients strongly agree that administering their plan is easy -- ten percentage points better than what is reported by plans with other types of advisors, and twenty percentage points better than the results reported by plans with no advisor. Thorough understanding of the employer s benefits philosophy, integration with other benefits plan (particularly in the enrollment / re-enrollment / employee communications process), average client size, and level of outsourcing all contribute to the ease of administration. Ultimately, the best gauge of the success of Advisors in the Benefits Segment is ease of administration. Nearly half (46%) of their clients strongly agree that administering their plan is easy Figure 26 Advisors whose clients find it easy to administer their plan (% of all plan sponsors) 23

24 Investment Segment Among Advisors who work primarily (or exclusively) with retirement plans, the Investment Segment consists of investment consultants, investment advisors or securities brokers (as clients define their Advisor). Three-fifths of clients in this segment describe their Advisor as an Investment Advisor. Approximately two-thirds partner with an Advisor who works primarily (but not exclusively) with retirement plans. Clients tend to be privately-held, employ 500 to 5,000, and hold plan assets in the $50 million to $100 million range. Over half (53%) have worked with the same Advisor for five or six years. Figure 27 Advisor description (% of plan sponsors partnering with an Advisor in the Investment Segment) Clients of Advisors in the Investment Segment lean on their Advisor for some services more than for others: nearly two-thirds retain their Advisor to review investment options periodically (less than half among clients of other Advisors). Going beyond periodic investment reviews, half or more of clients of Advisors in the Investment Segment use their Advisor s services to: Assist with the implementation of the fiduciary process, Help formulate an investment policy statement, and Provide technical help in the event of mergers, acquisitions, spin-offs, divestitures and plant closures Advisors in the Investment Segment are frequently the plan sponsor s first point of contact for problems with plan administration, fund consistency with the Investment Policy Statement, and plan design benchmarking. The range of corporate finance services available from broker-dealer and Registered Investment Adviser firms may explain why clients of Advisors in the Investment Segment lean on their Advisor for plan mergers, acquisitions, spin-offs, and divestitures. Clients may have a relationship with other individuals at the firm who help with corporate finance. Coordination would be particularly beneficial to the plan sponsor if the corporate merger involves a total or partial plan termination (defined contribution or defined benefit). 24

25 Figure 28 Advisors performing certain functions Clients recognize Advisors in the Investment Segment for an outstanding job helping them: Implement the fiduciary process Understand service provider and investment management fees Examine if their plan is in compliance with laws, regulations, and policies, and Develop an Investment Policy Statement Figure 29 Plan sponsor evaluations of Advisor assistance - understanding the fees that providers charge for their services by segment (% of plan sponsors with an Advisor) 25

26 Plan sponsor feedback collected in focus groups suggests help with compliance examination is particularly valued in today s complex regulatory environment. Going one step further, there is evidence plan sponsors want their Advisor engaged in influencing retirement plan regulations and legislation. Survey results suggest Professional Advisors in the Investment Segment take a hand in guiding the direction of policy change. Increased regulation and increased fines and penalties. Increased transparency and increased participant suits, partially due to the economy. Companies that try to navigate without professional help will be facing a much greater possibility of problems. -Jim, publicly-held employer, GA, employees Figure 30 Plan sponsor evaluations of Advisor assistance - examining plan compliance with applicable laws, regulations and stated policies (% of plan sponsors with an Advisor) Investment Array Management As might be expected based on their status, Advisors in the Investment Segment are often focused on the investment-related aspects of their clients retirement plan. A formal written Investment Policy Statement (IPS) can be very handy for plan sponsors. Written properly, the IPS provides a clear explanation of the process a plan sponsor uses to select investment managers. Having an IPS demonstrates the sponsor has an established process in place. Carried out properly, the IPS can also help the plan sponsor defend against allegations of negligence in the selection of investment options. An IPS might stipulate traditional performance standards, ERISA-based criteria, or a brief outline describing the process for conducting reviews. In some cases, plan sponsors less likely to carry out an Investment Policy to the letter, or those with a more litigious workforce, might choose to forego an IPS altogether. Nine out of ten plans that partner with a Professional Advisor in the Investment Segment have a formal IPS in place. 26

27 Figure 31 Incidence of Investment Policy Statement by segment (% of plan sponsors) Clients of Advisors in the Investment Segment use a larger number of fund families in the plan s investment array. Rather than place all funds with one or two managers, Advisors in the Investment Segment seek to hire managers with the best track record in each asset class. As a consequence, nearly half their clients (49%) use five or more fund families in their investment array - twice the percentage among plans that partner with other Advisors. To take things a step further, 16% of plans using Professional Advisors in the Investment Segment offer ten or more fund families on their investment menu compared with 6% of plans with other Advisors, or 3% of plans with no advisor. These Advisors may be helpful in formulating an investment array including options from a large number of investment firms, each managing one or two funds in asset classes where they are particularly skilled. Figure 32 Number of fund families in the investment array by segment (% of all plan sponsors) Rather than place all funds with one or two managers, Advisors in the Investment Segment seek to hire managers with the best track record in each asset class. 27

28 Seven out of ten plans partnering with an Advisor in the Investment Segment offer a target-date or target-risk series of funds. The series available in the investment array could be a proprietary offering of the retirement plan service provider or some other fund. As the percent of plan assets invested in default elections rise, ERISA attorneys and plan professionals seek to document that the selection of a target-date or targetrisk series is the result of a deliberate process. More than any other category, clients of Advisors in the Investment Segment have identified criteria to select the target-date or target-risk series available in their plan. Plans that partner with an Advisor in the Investment Segment enjoy particular success increasing deferral rates: 70% report that their deferral rates have improved in the last two years. Figure 33 Incidence of identified criteria to select the target-date or target-risk series (in IPS or separate) (% of plan sponsors with a target-date or target-risk series) Retirement Readiness To place participants on the path to retirement readiness, it is often necessary to increase deferral rates. Plans that partner with an Advisor in the Investment Segment enjoy particular success increasing deferral rates: 70% report that their deferral rates have improved in the last two years. Not only do Professional Retirement Plan Advisors in the Investment Segment help clients increase average deferral rates, the increase in deferral rates tends to be sizable: 20% of plans working with an Advisor in the Investment Segment have seen deferral rates increase by 6% or more. Nearly half (48%) have seen their deferral rates increase by 4% or more. These impressive results illustrate the dramatic difference in participant contributions that Professional Advisors in the Investment Segment are able to effect through (1) retirement readiness reporting and (2) bold plan design changes. 28

29 Figure 34 Incidence of increase in average deferral rates over the last two years by segment (% of plan sponsors) Figure 35 Average deferral increase experienced over the last two years by segment (% of plans experiencing an increase) One result of the hard work of Advisors in the Investment Segment: 70% of clients report that 50% or more of plan participants are on track to achieve a successful retirement. Retirement readiness reports at the participant level and the plan level are now commonplace. What differentiates the most successful plan sponsors is their record of taking action based on results reported. Perhaps because their Advisor walks them through the reports and helps formulate recommendations for consideration by committees, clients of Advisors in the Investment Segment are more responsive than others to readiness reports: 87% have taken action to enhance participant outcomes after receiving a plan-level retirement readiness report. Action may have involved changing the employer contribution formula, implementing automatic enrollment, implementing automatic contribution increases, and others. One result of the hard work of Advisors in the Investment Segment: 70% of clients report that 50% or more of plan participants are on track to achieve a successful retirement. 29

30 Figure 36 Incidence of taking action to enhance outcomes (% of plan sponsors who received a plan-level retirement readiness report) Figure 37 Plans with 50% or more of participants on track to achieve a successful retirement by segment (% of plan sponsors) 30

31 About the Research The research was conducted by EACH Enterprise, LLC, an independent firm specialized in retirement plan research whose clients include retirement plan service providers and investment managers across markets, plan sizes, distribution channels, and asset classes. EACH Enterprise administered the questionnaire to 407 plan sponsors between September 11 and September 24, The sample consists of: Employers of the private sector (privately-held, exchange-traded, and not-for-profit) 100 employees or larger 401(k) or 403(b) plan sponsors Plan assets in the $5 million to $500 million range Head of the retirement plan committee or fiduciary named in the plan document Respondents were screened from among a panel of 3,307 plan sponsors. 31

32 The study effectively demonstrates that plan sponsors who partner with a Professional Retirement Plan Advisor realize better plan benefits and participant outcomes. Conclusion The study effectively demonstrates that plan sponsors who partner with a Professional Retirement Plan Advisor realize better plan benefits and participant outcomes. Plan sponsors benefit from the ease with which they are able to administer their plans. They do not have to dedicate an inordinate amount of time to running the plan and can take comfort in knowing that the fees charged by their service provider and investment managers are reasonable and that their plan is in compliance with existing laws and regulations. With the help of plan-level reports on retirement readiness and notifications of retirement readiness sent to participants, plan sponsors can determine if plan design changes might be necessary to raise participation rates and contribution levels in order to enhance participant outcomes. The universe of Professional Retirement Plan Advisors is granular, including specialists with a wide variety of practices and business models. The broad category of Advisors working exclusively with retirement plans delivers retirement outcomes to participants and peace of mind to plan sponsors. The Benefits Segment excels at participant communication and education, committee work, fee and service benchmarking, thus easing plan administration. The Investment Segment, the largest in the Professional Retirement Plan Advisor universe, improved arrays of investment options managed by the best firms for the asset class and a focus on retirement success for participants. Even within these broad segments, Professional Retirement Plan Advisors differ on a variety of factors including participant education, communication and counseling services, scope of fiduciary services, approach to Qualified Default Investment Alternatives in the investment policy, compensation mix / mode, and business affiliation. The Professional Retirement Plan Advisor best suited to serve your plan depends on your objectives, facts and circumstances. EACH Enterprise, LLC 61 Rainbow Road, East Granby, CT , EACH Enterprise, LLC