Click to edit Master title style New Ballgame for 401k Plans

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1 Click to edit Master title style New Ballgame for 401k Plans Is Your Plan Advisor an Asset or Liability? Speakers: Ty Parrish Senior ERISA Consultant Blue Prairie Group Michael Rom Senior ERISA Consultant Blue Prairie Group 1

2 Agenda» What are the dramatic shifts transforming ERISA retirement plans?» How are leading plan advisors adapting in the new environment to help plan sponsors create successful plans?» What s reasonable compensation for advisory services? 2

3 I have a Plan Advisor What s all the fuss? Uptick in Fee Litigation is Transforming 401k industry - Pension & Benefit Daily» Increased Litigation» DOL Regulation and Audits» Delayed Retirements» Impact of Behavioral Finance Is your Advisor Adapting? 3

4 35 Year Report Card Pretty Mixed Results Strengths» Dominant savings vehicle» Accumulation of assets» Individual control and benefit Weaknesses» Failure to provide adequate retirement security» Difficulty converting savings into secure, predictable lifetime income» Participant burden and responsibility (poor decisions, ill equipped) 4

5 Dawn of a New Era The Early Years 1980s to Early 1990 s Rapid Growth 1990s to Early 2000 s Market Maturity 2010 to Present Awareness» Good to have» No transparency» No oversight» Delivered by benefit brokers Major Expansion» Must have» Proprietary» More is better» Rise of the investment consultant Extreme Makeover» Massive government activism and scrutiny» Increased litigation & complex environment» Emergence of specialized ERISA advisory firms» Simplicity of plan design 5

6 Fundamental Shift in Sponsor Thinking 6

7 Highlights of the New DOL Rule Effective June 9th Uniform Standard of Care for Qualified Retirement Plans» Fiduciary standard Act in client s best interests» Eliminate or disclose potential conflicts» Prohibits commissions unless disclosed and adhere to fiduciary standard» Charge no more than reasonable compensation» Legal enforcement 7

8 What Plan Sponsors Want Minimize Liability, Complexity, and Workload» Fiduciary protection» Ensure compliance, transparency & participant disclosures» Simplicity Better Retirement Readiness for Employees» Help employees retire on time» Attract/retain strong talent with a more optimal environment and results» Reduce financial stress and increase productivity 8

9 How Specialists Are Making Difference Holistic Approach Optimized Investment Menus Foundation of Strong Fiduciary Governance Fiduciary Advocate Focused on Participant Outcomes Behavioral Finance in Plan Design Full Transparency 9

10 Best Practice to Minimize Liability Benchmark All Service Provider Fees and Services 10

11 Best Practice to Minimize Liability Understand Your Fee Structure Administrative Cost (bps) UNLEVEL FEES STRUCTURE Cost of Recordkeeping LEVELIZED Cost of Recordkeeping A B C D E F G H Participants A B C D E F G H Participants 11

12 Best Practice to Minimize Liability Conduct a Fiduciary Review Do you have the following:» Fiduciary Process» Committee Charter/Bylaws» Investment Policy Statement (IPS)» DOL Audit Ready Fiduciary File» Meeting Minutes/Evidence of Decision Making Process 12

13 Best Practice to Improve Retirement Readiness Opt-out Plan Design Opt-in vs Opt-out 12% 99% Donate Organs Donate Organs Source: American Century Participant Study

14 Best Practice to Improve Retirement Readiness Auto Escalation This illustration shows the impact of adding an auto escalation feature of 1% per year up to 12% of pay for a 35 year old employee with a $50,000 salary and a 3% contribution. Source: BlackRock Future in Focus. 14

15 Best Practice to Improve Retirement Readiness Target Date Fund Re-enrollment STANDARDIZED FIVE-YEAR RETURNS: HIGHS, LOWS AND MEDIANS BY INVESTMENT STRATEGY 30% 25% 25.0% 25.5% 20% 18.8% 15% 10% 5% 10.0% 14.2% 13.3% 11.7% 0% 1.8% -5% -2.3% Target Date Funds Core Menu Brokerage Window Source JP Morgan Investment Management as of

16 Evolution of Advisory Fees Commission arrangements have dropped dramatically over the past decade from 75% to less than 36% today. PAST» Assets Based Commissions» Hidden in Investments» Revenue Sharing PRESENT» Flat Fee Contract Direct with Client» Complete Transparency» Zero Revenue Sharing 16

17 What s a Reasonable Fee to Pay Your Advisor? Assets (Millions) *Low Range *High Range $ 10 MM $22,500 $29,000 $ 30 MM $31,000 $60,000 $ 50 MM $29,000 $70,000 $ 70 MM to 90 MM $40,000 $104,000 $ 100 MM to150 MM $39,000 $105,000 $ 150 MM to 200 MM $42,000 $120,000 17

18 Wrap Up» Dramatic shifts transforming ERISA retirement plans» How leading plan advisors adapting to help plan sponsors create successful plans» Defining What s reasonable compensation for advisory services 18