Insider 2020 NAPA 401(k) CYBER SUMMIT
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Fall 2020 NAPA 401(k) Cyber Summit Insider
Table of Contents Letter from the Editor 2 Who Are the “Summit Insiders”? 4 The Biggest Issues 6 “Over” Done?: The Most Over-Hyped Trends 8 Describe 2020 in One Word (More or Less) 10 Client Concerns 11 I Wish Plan Sponsors Knew More About… 12 Consider “Actions”: Recordkeeper Recommendation Factors 16 “Leave” Behinds: Reasons for Leaving A Recordkeeper 16 What Should Recordkeepers Understand (Better)? 18 “T” Parties: Who’s Working With Third Party Administrators 20 “Primary” Colors: Primary Considerations in TPA Partnerships 20
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Special Supplement To
the magazine
Editor-in-Chief Nevin E. Adams, JD nadams@usaretirement.org Art Director Ethan Duran eduran@usaretirement.org Director of Conference Sales Gwenn M. Marsh gmarsh@usaretirement.org Digital Sales Tony Descipio tdescipio@usaretirement.org Cover rzymuR / Shutterstock.com Copyright 2020, National Association of Plan Advisors (NAPA). All rights reserved. This publication may not be reproduced in whole or in part without written permission of the publisher.
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Working with TPAs 22 SWOT “Thoughts”: Strategic Practice Priorities 26 What Nobody’s Talking About...Yet 30
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NAPA 401(k) Cyber Summit Insider
Fall 2020
Letter From the Editor
Digital Designs Third time’s a ‘charm’ for Summit Insiders
I
n a year like no other, the NAPA 401(k) Summit—and Summit Insider—also underwent change. The Summit went digital—and the Insider—which traditionally “launched” at the Summit, this year launched just ahead of the digital event. One thing that wasn’t different—this year more than most, there is perhaps no group of retirement plan advisors as committed to the business of retirement as those who logged in—and who, to this day, continue to log in and relive the digital experiences of the 2020 NAPA 401(k) Cyber Summit. That provided us—and ultimately you— with some unique insights from an exclusive group that we refer to in the pages that follow as our Summit “Insiders.” In the pages that follow you’ll find summarized the perspectives of more than 400 retirement plan advisors and home office staff on a range of issues: the issues of pressing concern, the criteria in selecting—and rejecting—key business relationships, the things that are over-hyped—and the things that no one is talking about—but that everyone, at least in the eyes of these “Insiders,” should be. We even have a word cloud, drawn from respondents’ “one word” summation of this extraordinary year. We’ve included a number of verbatim comments to two key questions—what these “Insiders” wish that plan sponsors knew, or knew better—and the same perspective on their recordkeeping relationships. Sometimes those words are harsh, sometimes reassuring. I only wish we had room to share them all. Among the key findings: • Once again, while there was no shortage of big issues on which to focus, cyber security topped the list of concerns this year, with more than 4-in-10 calling it “very important,” outpacing “client retention” which had topped this list the past two years.
• Administrative burdens/complexity topped the list of concerns for their plan sponsor clients, slightly outpacing a new category—total benefits spend/benefits budget. • Top reasons for recommending a change in recordkeeper were that the plan outgrew service model/poor service (30%) and fees too high (26%). • Service—good service—was also a top criteria for choosing a third-party administrator partner (56%), but ability to help with plan innovation came in second (26%). • When it comes to over-hyped trends, ESG investments once again not only topped the list, but drew nearly twice as much support in that category as the No. 2—Robo-advice— which has also consistently been at or near the top of this list. Multiple employer plans, or MEPs, a new item on this menu—were a close third. A special thanks to the hundreds of retirement plan advisors who took the time to provide such thoughtful responses—and to the sponsors of this third edition of the Summit Insider.
Nevin E. Adams, JD
Editor-in-Chief nadams@usaretirement.org
• Diversity/Inclusion initiatives—a new category this year—was considered “very important” by a quarter of the respondents.
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Fall 2020
Who Are the ‘Summit Insiders’?
J
ust over 400 advisor and home office “attendees” of the 2020 NAPA 401(k) Cyber Summit responded to this year’s Summit Insider. Just under a third (32%) had been a retirement plan advisor for more than 20 years, and a quarter had been for 15-20 years. There were, however, 14% who had less than five years experience in that role, and a nearly equal number (13%) that had been in the role for 5-10 years. Their target markets were similarly diverse. About a quarter each targeted plans with less than $5 million in assets, between $5 million and $10 million, and between $10 million and $25 million. The remaining quarter were divided between market segments ranging from $25 million to more than $41 billion in assets. SI
How long have you been a retirement plan advisor?
With what size retirement plans do you TYPICALLY work?
2%
4% 4%
14%
^ 25% 32%
6%
1% 12%
13%
16%
23% 25%
26%
More than 20 years 15-20 years
> $1 billion in assets $500 million-$1 billion in assets
10-15 years 5-10 years Less than 5 years
$250-$500 million in assets $100-$250 million in assets $50-$100 million in assets $25-$50 million in assets $10-$25 million in assets $5-$10 million in assets Less than $5 million in assets
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NAPA 401(k) Cyber Summit Insider
Fall 2020
The Biggest Issues
W
e’ve had a lot to deal with over the past several months – and not just a pandemic. We asked our Summit “Insiders” to rank what they thought the biggest issues would be for their practice over the next 12 months, using a four-point scale, from “not at all” to “very important.” While the responses are, of necessity, varied, several specific issues of concern were consistently cited, specifically: Internal issues like client retention, succession planning, scaling your practice, attracting and retaining talent – and external concerns, such as cybersecurity, competition, and the 2020 election. SI
Pratice Practices
Client Retention
Succession Planning
Very Important 39% Important 31% Somewhat 19% Not at All 11%
Very Important 13% Important 24% Somewhat 29% Not at All 34%
Diversity/Inclusion Initiatives Very Important 24% Important 13% Somewhat 31% Not at All 27%
Rules & Regulations
Scaling Your Practice Very Important 36% Important 37% Somewhat 19% Not at All 8%
Attracting & Retaining Talent
Fiduciary Regulation Uncertainty
Very Important 27% Important 41% Somewhat 21% Not at All 11%
Very Important 10% Important 33% Somewhat 38% Not at All 19%
The Competitive Environment
Fee Compression
Advisor Group Consolidation
Very Important 11% Important 30% Somewhat 46% Not at All 13%
Very Important 8% Important 27% Somewhat 40% Not at All 25%
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Uneven Playing Field Between Different Advisor Types Very Important 8% Important 27% Somewhat 37% Not at All 28%
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7 External Factors
State-Run IRA Programs
Provider Consolidation
Robo-Advisors
Very Important 7% Important 11% Somewhat 33% Not at All 49%
Very Important 6% Important 38% Somewhat 42% Not at All 14%
Very Important 2% Important 14% Somewhat 42% Not at All 42%
Cybersecurity
Competition
Impact of the 2020 election
Very Important 43% Important 35% Somewhat 16% Not at All 6%
Very Important 23% Important 44% Somewhat 26% Not at All 7%
Very Important 27% Important 33% Somewhat 25% Not at All 14%
Other Issues: We are not seeing a current issue with client retention but given regulatory changes and macro events, we could see this as an opportunity for our firm. The rules have become more difficult and punish the good advisors The election will be potentially game changing for our industry
Connecting with clients and participants remotely. As always if we focus on what we can control and deliver value at a reasonable price the rest is just noise. The challenge is to continue getting paid a reasonable fee for the amount of risk and effort. I believe the answer is in creating a scalable business model. Adapting to a virtual world.
Race to zero with fees. We've never worked harder for our 401k clients Planning on staying 100% virtual
Sasin Paraksa / shutterstock.com
Nothing at this time. It's all about retaining and winning new business. I believe that cybersecurity is very much underrated and misunderstood. This affects everyone in the retirement world. DOL response on PEP’s clarifying rules and exemptions.
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Fall 2020
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Collective investment trusts and health savings accounts also continued to rate highly here (which, of course, suggests that they aren’t actually rated highly), also remained high on the list. But – if only because it has so long been held out as being a “game-changer,” multiple employer plans (MEPs), or the SECURE Act’s version of same (Pooled Employer Plans, or PEPs), entered the list with a robust #3 ranking of the most over-hyped trends. “Most ‘wellness programs’ seem to be attempts to get
paid again for what we as an industry promised to deliver in the first place,” noted one respondent. “I am of the opinion that most everything is overhyped and I can’t pick just one,” commented another respondent. “There is far too much noise in our industry. Need to keep things simple and effective. I don’t like fads and gimmicks and there are now just so many.” Or, as another respondent commented, “Really, all of the above...”. SI
ivector
W
hen it comes to overhyped trends, ESG investments once again not only topped the list, but drew nearly twice as much support in that category as the #2 – Robo-advice – which has also consistently been at or near the top of this list. “As ESG becomes a greater focus, companies are putting ‘ESG’ in their prospectus language, which is what lands them on a screening in Morningstar. Gaming the system is too easy,” commented one respondent.
/ shutterstock.com
“Over” Done?
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9 What do you find to be the MOST over-hyped “trend� in the industry? ESG Investments
2020
2019
27%
20%
2018
16%
Robo-advice
2020
Managed Accounts
2020
2018
7%
12%
Fee Compression
2020
2019
1%
4%
2018
N/A
2020
2019
1%
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2018
25%
2020
2019
13%
2020
3%
2019
7%
2018
11%
2018
N/A
2020
2020
2019
3%
2018
N/A
2020
N/A
2019
1%
2018
N/A
2019
6%
Passive Investment Strategies / Vehicles
3%
N/A
2018
N/A
ETFs
Nonqualified Deferred Compensation Plans (NQDC)
Advisor Consolidation
1%
19%
3(38) Services
2019
5%
2019
17%
Collective Investment Trusts (CITs)
MEPs/PEPs
6%
2020
2019
2%
2019
15%
2018
12%
Financial Wellness
2018
11%
Recordkeeper Consolidation
N/A
2020
12%
2020
5%
2019
2018
6%
6%
Retirement Income Strategies
2018
N/A
2020
2019
2018
1%
1%
2%
Health Savings Accounts (HSAs)
2020
5%
2019
2018
8%
5%
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NAPA 401(k) Cyber Summit Insider
Fall 2020
Describe 2020 in One Word (More or Less)
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Client Concerns
S
everal categories of concern were added for consideration this year. Specifically, we asked Summit Insiders to choose the three most significant concerns for your plan sponsor clients. Benefits budget registered a strong second in its debut, but administrative burdens/complexity continued to dominate this list. Financial wellness remained a strong contender, though it gave some ground, while COVID’s impact on the future – both contributions and employment (which, in turn, might impact contributions) – was top of mind for many. New entrants weren’t always big concerns, however; lifetime income barely registered, nor did a recent litigation focus, the provider use of participant data. Student debt has softened as a concern, as has investment fees, plan administration costs, and helping participants prepare for decumulation. And, for all the furor over the recent DOL pronouncement on Environmental, Social and Governance (ESG) investments, for the second year in a row, as a plan sponsor concern…it wasn’t. SI Most significant concerns for plan sponsor clients
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2020
2019
Administrative burdens/complexity
16%
17%
*Total benefits spend/benefits budget
11%
Financial wellness
10%
2018
13%
* COVID impact on future contributions/employment
8%
Cybersecurity
7%
6%
11%
Participation rate(s)
7%
10%
16%
* Contribution/funding
7%
Savings/deferral rate(s)
6%
12%
19%
Plan administration costs
6%
10%
15%
Investment fees
4%
7%
9%
Helping older workers plan for decumulation
3%
6%
8%
Non-discrimination tests
3%
4%
7%
Litigation
3%
3%
7%
Student debt
2%
6%
* Provider use of participant data
2%
Investment lineup
2%
2%
4%
Plan leakage
2%
1%
2%
Lost participants
1%
3%
2%
* Lifetime income
1%
ESG
0%
0%
100%
100%
100%
*New categories for 2020
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NAPA 401(k) Cyber Summit Insider
Fall 2020
I Wish Plan Sponsors Knew (More) About…
…“us”
How much work and time that goes into managing their plans from the advisor point of view. We can show it to them but I feel they don’t truly get it/value it a lot of the time.
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The advantage to them and their employees of working with a specialist retirement plan advisor vs generalists and especially vs. generalists who have a personal relationship with their key decision-makers. The amount of time we spend on their plan. The role the advisor plays in plan governance. The work we do to keep ahead of the changing landscape. We wish plan sponsors and their HR Teams understood
that we are more than just retirement consultants. We are their connection to their employees and serve as the financial psychologists; we get insight into how the company is treating them and if they are providing the all the benefit resources they need to be successful. We want best outcomes for the plan and participants just as much as they do. The amount of services that RIAs perform behind the scenes.
VectorMine / shutterstock.com
I
t’s often said that the customer is always right – but that doesn’t mean that they are always fully informed, and – not being fully informed – they might not always make the “optimal” choice. As part of the Summit Insider, we asked respondents to fill in the blank,…“I wish plan sponsors knew more about…”
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13 How complex the retirement plan business really is. We are not the Recordkeeper; we work for them, not the Recordkeeper.
…“them”
Their fiduciary responsibility and how to mitigate it. Effective communication with an investment advisor is important. We see many committee members, who are fiduciaries to the plan, with little understanding of the underlying investments and how they are managed. Our industry-speak and investment jargon isn’t helpful, and plan sponsors shouldn’t resist speaking up and pushing back when they lack clarity. That fees are not the end all be all when it comes to retirement plans.
…plan operations generally…
The impact that payroll can have if not handled properly. They have to take ownership of running their plan. If they don’t stay on top of the administrative tasks, then the plan will have failures. They can’t rely on vendors to do all the heavy lifting. The difference between the recordkeeper, TPA and advisor. If there is a problem with one, there is a problem with all. What roles the recordkeeper, TPA, and advisor have. Who is responsible for what? That the workings of a plan are much more complex than a simple fee and that time spent learning about the plan and offering will greatly benefit the plan and participants.
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The importance of timely contributions and repercussions of not making timely deposits.
…and fees…
How their plan features work.
Lower fees aren’t always a better option.
That they have to pay attention to those in their company that are supposed to be paying attention to their plan. The importance of submitting timely information for annual compliance testing and the liability involved with sponsoring a retirement plan. Auto enrollment does not mean it happens for the plan sponsor automatically. The client must go through some steps for it to work correctly.
…and their roles and responsibilities…
That they have a fiduciary obligation to always do what is in the best interest of plan participants and should focus their efforts not only on encouraging plan participation and savings, but also on renegotiating lower plan costs, and monitoring and improving investment options and participant level asset allocation as appropriate. An employer contribution is not a typical expense. It’s an investment with ROI based on marginal reduction in recruiting, training, and onboarding costs of turnover and productivity gains based on an engaged, loyal, and caring workforce. Participant data is being used in cross sell without client permission. How serious ERISA rules/ laws are. These rules are not optional.
You get what you pay for (or don’t).
The value of hiring a fiduciary advisor and how important it is to understand their fiduciary responsibilities. We live in a world of fee compression with tighter margins than on the wealth management side of the business, but Retirement Plan Fiduciary advisors arguably take on more risk and need even more expertise to manage retirement plan clients, but earn lower fees. If you’re having plan participants pay the plan expenses you’re only providing access to a retirement plan and not offering a benefit. That participant support and education that drives outcomes is worth 10-20 bps. Fees are important in the absence of value. Fee compression hurts industry. Fees versus other factors in choosing investment lineup – cheaper isn’t always better. That cheaper isn’t always better. Sometimes the bells and whistles that come with a provider that is a little more expensive can greatly benefit the growth of your plan. How fees impact the bottom line. Fees aren’t everything. If your top priority is to keep the plan costs as low as possible, that’s ok, but then you might need to readjust your expectations for the quality of service that you’ll be receiving.
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NAPA 401(k) Cyber Summit Insider
…and plan designs…
The value of automatic enrollment, and that it’s not paternalistic. I wish more plan sponsors understood that market drops do happen and that there is no way to necessarily prevent those loses. Rather, the best that can be done is to make sure the plan (and it’s participants) are appropriately allocated within the market to make it through a drop. Participant outcomes are the most important goal. How complex plans really are to run correctly. Qualified plans play a much more minor role in holistic retirement readiness than advertised.
readiness than all the smart email campaigns combined. That the 401(k) should be treated as a cost-benefit rather than just a cost. In other words the 401(k) should be examined on an ROI basis just as marketing expense is. The risks they have and we help reduce. The greater profitability the firm has when employees can retire on time or early.
…and of course about workers/participants…
Their employees did not learn budgeting, or how to save in high school or college. You may have to teach them very basic life skills. That the less their employees have saved, the less likely they are to retire at a reasonable age. The older, less financially secure employee will provide less output at work, at the same cost of someone who can be more productive.
Participant needs. I happen to be in a facebook group of employees of one of my clients and it is very interesting to see their thoughts. The need for better participant engagement/importance of an actual financial wellness program. How much of a positive impact on employees a well thought out and structured plan can have. Many do the bare minimum. The importance of educating participants on a frequent basis. The challenges that their employees have with personal finances. The plan is one of the strongest benefits that they can offer their employees. It is not an entitlement but a benefit, and it should be promoted as such throughout the year. SI
VectorMine / shutterstock.com
I wish plan sponsors understood that a well designed plan, with a well designed investment menu, does more for participant retirement
Fall 2020
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NAPA 401(k) Cyber Summit Insider
Fall 2020
Consider “Actions”
A
sked to rank as a primary consideration, a secondary consideration, or “irrelevant” to their recommendations regarding a recordkeeper, it’s not surprising that “service” topped the list, with nearly all (93%) of respondents according it “primary” consideration. What might be a bit surprising is that the next most common consideration – fees – drew only half as much consideration as a primary factor – and that was only slightly ahead of participant engagement. We added a new consideration this year – participant data utilization policies – and while it didn’t garner much attention, since it has arisen in several litigation cases of late, it could be something to watch – and watch out for – in the future. SI What is your PRIMARY consideration in selecting a recordkeeper? Ability to Help with Plan Innovation
Service Fees
17%
Investment Options
Participant Data Utilization Policies
41%
50%
Participant Engagement 47%
TDF Options
41%
93%
14%
Brand 39%
“Leave” Behinds
T
here are the reasons “for”, and then there are the reasons to leave – and we also asked the Summit Insiders to pick their top three reasons for proposing a change in recordkeepers. As one might expect, the criteria mirrors those for selecting a recordkeeper in the first place – where good service was a reason to choose, bad service is a reason to leave, etc. But if fees was a distant (albeit primary) concern in selection, it showed up far more frequently as a reason to leave. Beyond that, the primary reasons for leaving seemed to be based not so much on poor delivery on promises/expectations, but on situations where a plan’s size (or needs) simply outgrew the capabilities of the recordkeeper. SI What are the top reasons for proposing to change your prospect or client’s recordkeeper? Poor service
30%
Fees too high
24%
Plan outgrew service model
18%
Limited technology/web-based tools
12%
Investment restrictions
6%
Unable to accommodate unique assets/plan design
4%
Lack of wellness/retirement readiness tools
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3%
Policies regarding use of participant data
1%
Inability to offer custom models
1%
Not a firm-approved provider
1%
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NAPA 401(k) Cyber Summit Insider
Fall 2020
What Should Recordkeepers Understand (Better)? space and do a great job. It is somewhat alarming to see some of the “pay to play” programs begin to re-emerge as an attempt to show a cost reduction.
The benefits of a team having one advisor login.
My experience has been very positive in this area. Only issues I have is when the client relationship manager doesn’t provide timely service.
Advisors matter. Reward those that are good partners.
After many years, I believe that most of the major recordkeepers understand the retirement
If you make it easy on advisors to service their clients, they will bring new business.
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Most are doing a good job, but a few have moved to more of a call center model, and clients/ consultants like to have a dedicated relationship manager. So, what exactly do our Summit Insider advisors want their recordkeeper partners – past, present, and future – to know?
About “Us”
Advisors are necessary partners in communication to plan sponsors.
FA tools and resources are a factor in the selection of vendors.
The assistant should have the same web access and client account access as the advisor since they do all the work. Allowing me to have access to help the participants instead of them calling into a random 800 number. The advisors are not adversaries, and providers should not try to back-door sponsors. I need them to make me look good. This is MY client I’m bringing to you. I am your client. Partner with me with that in mind. Our relationship with our plan sponsor clients is fragile.
VectorMine / shutterstock.com
T
here is perhaps no advisor partner more critical to a successful plan relationship than the recordkeeper. However, like any relationship, there are occasional points of contention; disconnects in communication, misunderstandings about finances, and disagreements (in words or deeds) as to which service partner “owns” the relationship with the plan sponsor. We gave Summit Insiders a chance to weigh in here – and offer up commentary as to what they wish recordkeepers knew (better). Some of the comments are harsh, others complimentary, most interested in establishing a smooth, cooperative, communicative relationship that ultimately works to everyone’s benefit. Consider the following comments:
10/1/20 10:22 AM
19 Unlike recordkeepers, we can be replaced with the stroke of a pen (or keystroke), and it can happen quickly. Sometimes, plan sponsors will reach out to the recordkeeper for a problem or change, but won’t tell the advisor about it.
About Plan Sponsors
Most sponsors are severely understaffed. Payroll is a huge deal. Plan sponsors aren’t experts and need help with understanding money types and need someone to monitor the account throughout the year. Mistakes happen and need to be corrected without charges to the client. The need for sponsors to have an easy service model - no filling out service requests, just being able to email a responsible person.
are not the same. They don’t have the same employee base, industry, turnover or priorities.
The importance of participants being able to do “everything” on their phone.
Recordkeepers send tons of email correspondence, some with calls to action, but don’t understand that plan sponsors don’t always understand what they need to do. Especially when there is turnover in HR departments.
That their paperwork needs to be prefilled/pre-populated. It’s not up to the plan sponsor or advisor to understand their back office. The value of sending messages in advance to the advisor so they can help support the direction and field questions or concerns.
How much a phone call means to a plan sponsor. Quit firing off emails all the time and pick up the phone to explain. Human interaction can create such a better relationship between the sponsor and recordkeeper. The client has NO understanding of how to run the plan and the primary contact at the plan sponsor of a small plan has TOO MANY jobs. She needs some proactive hand holding to get the plan running correctly.
The lack of understanding sponsors often have of the complexity of the recordkeeping of the plan.
About Fees…
To our clients, administering retirement plans is typically low on the overall priority list. Important, yes - but our clients need information simply and efficiently. Reporting should be much more concise and therefore, valuable.
It’s not just about numbers. It is about people.
That clients do not want a manual to read on what they have to do. The plan sponsor does like to have more contact, not less. Sponsors don’t know what they don’t know. Although all plans operate under the same regulatory requirements, all plan sponsors
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Reducing costs usually means reducing service. I want top service, not low fees.
A Wish List…
How to better provide participant usage data. How to simply dashboard views of plan data and performance. Stop pushing proprietary investments. RKs should stick to the basics on the home participant site: account balance / returns, investments (ability to change easily w/o multiple clicks), and ability to show readiness for retirement (ie. make it easy to increase contributions).
I wish they took more time to understand how we work as advisors to the plan. I wish their platforms gave easier access to plan documents and forms needed to service the plan. The advisor side of their website. Allowing advisors to track notes for individual participants would be a great addition. Sense of urgency. Some processes take more time then necessary. More online interactions and simpler processes would be beneficial. That not everyone has a computer and not everyone reads their email. We still need to offer services that are userfriendly and effective to folks that don’t have computers or smart phones. More reasonable assumptions when forecasting growth of savings. The importance of attracting and retaining well qualified relationship managers - they cannot be replaced with technology so they should be considered more valuable internally. Keeping the advisor informed makes for a much more harmonious partnership. SI
10/1/20 10:15 AM
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Fall 2020
“T” Parties
H
aving introduced some data regarding sales with third-party administrator relationships in last year’s Summit Insider, specifically what percentage of their new business was sold with a TPA, we wanted to further explore that critical relationship. Of course, the “third-party” harkens back to a realization that these firms, as with recordkeepers generally, provide services to a plan sponsor that plan sponsors once did for themselves. Things have grown significantly more complicated over the years, though, and today TPAs not only keep up with participant accounts, they can be an invaluable resource to plan sponsors – and advisors – on issues like regulatory compliance and plan design. That said, when asked what percentage of their current business was supported with a third-party administrator (TPA): SI What percentage of your new business is sold with a TPA? Less than 25% 25-50% 51% - 75% 76% - 99% 100%
9% 15%
10% 21%
“Primary” Colors
H
owever, asked their PRIMARY consideration in selecting a third-party administrator (TPA) partner, those who did work with TPAs were most focused on – service, which drew double the level of support of any other criteria. Indeed, service as the leading priority should come as no more surprise here than it did for TPAs’ recordkeeper “cousins”. However, the second-most cited criteria here – and one that outpaced #3 cited fees by a significant margin – was the ability to help with plan innovation. That emphasis stood in some contrast with the focus on recordkeeper partners and fees. SI
1% What is your PRIMARY consideration in selecting a third-party administrator (TPA) partner? Service Ability to help with plan innovation Fees Geography/proximity Brand/reputation Participant engagement
SummitInsider_2020_Insider.indd 20
3% 4% 10%
26%
56%
10/1/20 10:28 AM
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9/28/20 2:34 PM
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NAPA 401(k) Cyber Summit Insider
Fall 2020
Working with TPAs
The Good, the Bad, and the Good AND Bad — Summit Insider Insights
“Most TPAs prove their value in the consultation and ongoing annual reviews,” commented another. “They are very helpful in plan design and resolving issues”.
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“I work less with TPAs today as I have found that the distribution process, notice delivery, and confusion on the part of the plan sponsor as to who is responsible for what make it more complicated than a fully bundled plan with a great recordkeeper,” said another. “If they provide value, we love to work with them,” said
another. “’Value’ means helping with difficult plan designs, providing good customer service and user experience to the client and to us, keeping us in the communication loop with the client, dedicated to training and continuing education for their staff, and being proactive. While those might seem like they comprise a low bar, but most straight-up cannot provide them”. As long as total fees are competitive with a bundled approach, we feel the TPA adds value to the relationship in many ways. While one Insider cautioned that there can be “too many points of contact if the plan is simple, if we have many different
/ shutterstock.com
“Smaller companies with less in house expertise and resources are the ones I typically gravitate toward TPA usage,” explained another.
“In my experience in certain plan design situations it makes sense to have a TPA (doctor group, etc). If there is a traditional plan design it is easier to have it bundled because there are fewer parties and simpler for the plan sponsor,” commented another. “I have tried a TPA in those situations and it is more confusing for the plan sponsor”.
tomes
“We work with TPAs as we believe in the additional touch, expertise and focus these teams place on the annual recordkeeping, administration and testing where bundled solutions often have individuals simply ‘filling a role’ instead of individuals dedicated to the space,” commented one Insider.
10/1/20 11:34 AM
23 employee types that impact the plan’s complexity, we may use a TPA”.
Lack of service or high fees. Unclear proposals. No dedicated representative.
“TPAs provide an additional layer of accountability and expertise. I can partner with my TPA differently to service my clients. Also if there is a problem, they’re the best fixers”.
Simple plan designs don’t need to pay extra for a TPA.
On the other hand, “We find TPAs to be more responsive,” noted another. “Bundled isn’t always more efficient, as they would promise”.
The service model is expensive and the services are a commodity. Particularly in our market, poor service seems to a differentiator.
We asked Summit Insiders why they didn’t work with TPAs – and why they did. We got a wide range of responses:
They provide a higher level of expertise and service vs. bundled recordkeepers for smaller plans (generally <$10M).
The TPA model is antiquated. It is rare that a plan is not better off in a bundled solution.
Whys
TPA’s are a great option for plans with more sophisticated plan design features. They are also a great resource for plans that are experiencing poor customer service from a bundled provider. We find the service is better and plans like having someone local. They can provide a higher level of expertise in some cases. TPA partnership has been increasingly important to get around the bureaucratic/data management requirements of recordkeepers.
Keep me honest, great idea partners, increased credibility to our fiduciary team, etc. Why Nots
Clients prefer to have bundled.
I try to avoid adding a TPA because they become a third person involved and sometimes confuses the client in terms of who and when to contact.
Plan complexity has become less across our BOB.
Prefer one-stop approach of fully bundled.
They used to help the client A LOT, but that has begun to change in last two years.
Typically, the TPA model can be inefficient with some operational tasks such as loan/distribution processing and vesting updates on the recordkeeping system. They can be very beneficial for plans with complex situation and provisions.
Lack of responsibility/ownership when something goes wrong.
Lack of service/communication with Advisor. I find TPA’s provide services and fees that are duplicated at the recordkeeper, won’t interact with participants and don’t include us when there is a problem or are not monitoring the plan transactions for errors.
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Most TPA’s are antiquated and often add “inefficiency” and cost to the process.
TPAs are compliance professionals and hands-on in maintaining the tax qualification status of the plan. Helps client reduce errors on day to day basis. TPAs specialize in this area and are often more nimble in service and plan design efforts when working with plans under $2M to $3M. Work with them to do more advanced plan design. The TPA customizes the plan design and reporting relationship in the same way that we customize the investment and participant services.
10/1/20 9:32 AM
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Fall 2020
TPAs add another layer of expertise and service to the relationship.
Needed on complicated plans. Though the RK’s are improving on scale.
employer that doesn’t have staff to administer properly, a TPA is best.
Love consulting aspect with design and fiduciary governance.
Industry knowledge hands on support with technical questions.
TPA partnership makes a lot of sense for complex plans with creative plan designs and migratory/seasonal employees which can impact testing.
The local expertise and personal service/attention for our team and the plan sponsor is very important.
Another set of eyes on everything, assistance with keeping the plan legal, assistance with actuarial work, collaboration.
Typically we use bundled platforms for efficiency. We use
A really strong TPA is a partner to me/my team and makes us all look better, perform better and give the client the best service experience.
Ability to work with highly complex or unique company or plan circumstances (e.g., multinational controlled groups / comparability plans...). I’ve always found it to be a good partnership, and while I pride myself on having a strong knowledge of plan design, it’s always good to have the experts in place. I also don’t think bundled record keepers provide much in terms of plan design support; they are more processors than anything else. I like working with TPA on plans that have legacy assets that remain from a prior recordkeeper. I work with them for a higher level of service and customization for plans. To ask the right questions and to sniff out wrong answers.
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I work with TPAs because I see a higher level of knowledge and more consistency in terms of who the relationship manager is and that staying that way for a long time. TPAs help with complex plan design and provide a high touch service. Bundled providers are terrible for any type of plan document change. Terrible. We work with TPAs because it adds a local group to connect with as well as an objective third party to review compliance issues. Like the personal connection-high touch.
Both
Bundled reduces the complexity and cost. When simplicity is needed, bundled works best. When something custom is needed or handholding with an
TPA’s for plans that have more complex plan designs, utilize a DB, and /or if the client needs additional hand holding. To me it depends on how complicated the plan design is. If the plan design is fairly complicated and they utilize other retirement vehicles such as a cash balance plan, I recommend a TPA. Clients have historically been inclined to go fully bundled. When doing an RFP we usually include one TPA/Unbundled solution if it’s competitive for the search. We like the TPA model, but clients have organically shied away from them when it’s decision time. TPAs are very helpful with certain clients – especially those that consistently struggle with ongoing plan issues, corrections, late deposits, etc. SI
10/1/20 9:32 AM
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9/28/20 4:37 PM
NAPA 401(k) Cyber Summit Insider
Fall 2020
Arguably one of the most-anticipated changes from the SECURE Act was the advent of (truly) “open” multiple employer plans (MEPs), rebranded and somewhat refined to what the legislation calls pooled employer plans, or “PEPs.” Long championed as a means to help close the coverage gap, particularly among smaller employers, by providing certain structural and cost efficiencies of scale—there are some details yet to be worked out by regulators (they aren’t effective until Jan. 1, 2021). More recently, MEPs have found themselves in the crosshairs of litigators who allege that, despite those efficiency claims, some providers have charged excessive fees and not fulfilled their fiduciary obligations. All of which may, despite a minority view as a game changer, have left a slim plurality calling it “too soon to say.”
SWOT “Thoughts”
I
n a profession that must consistently embrace and adapt to changes— whether regulatory, legislative or environmental—2020 has brought with it what feels like a more than customary amount of challenges. And this year more than most, those challenges seem fraught with prospects for either opportunity or threat, depending on your perspective. It’s customary for businesses in evaluating future prospects to consider/identify elements under a “SWOT” analysis: strengths, weaknesses, opportunities or threats. For this year’s Summit Insider, we asked respondents to weigh in on how they saw these portents
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Environmental “Impasse?” DOL’s ESG Proposed Rule
of change: a game changer, for good or ill; something about which much ado had been made without justification:—or is it simply too soon to say?
20%
46%
“PEP” Talk
28%
6%
MEPs/PEPs (Multiple Employer Plans/Pooled Employer Plans)
12% 40%
20%
38%
In late June, noting its concern “that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes distinct from providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan,” the Labor Department
MJgraphics / shutterstock.com
26
10/1/20 10:36 AM
27 proposed a new rule to clarify the standards. Standards, it seems fair to say, that left unamended might be expected to slow interest. Since then the Labor Department’s call for comments on the proposal has engendered a strong and, it seems fair to say, “vigorous” response. And yet, despite signs of enthusiastic support among some advisors, nearly half considered the proposal “much ado about not much”— though whether that applies to the proposal itself, or the realization that, at present, it’s not more than a proposal is anybody’s guess.
the prudent selection of lifetime income providers. The first is already in place among many providers (albeit not necessarily using the DOL’s proscribed method), the second kicks in only after an in-plan option is in place—but the third—additional insulation against what many see as the biggest stumbling block to plan sponsor adoption of these options—well, could that be a game-changer? Summit Insiders seem to think so.
Electronic “Avenues” 4% 3%
SECURE Act’s Expansion of Retirement Income Safe Harbor
15%
86% 27%
54%
Among its many changes, the SECURE Act contains three sections that, taken together, are expected to have a positive impact on the provision of retirement income products in defined contribution plans: the reporting of a monthly lifetime income amount on participant statements, allowing for the portability of “in plan” lifetime income benefits, and an expansion of the safe harbor for
Second Chances? DOL’s Fiduciary Reproposal
11% 37% 26%
26%
1%
E-delivery
“Safe” Hows?
3%
savings. That has the makings of a positive game changer— and that seems to be just how the Summit Insiders see it.
When the Labor Department unveiled the final e-delivery rule in May, it was the culmination of years of hard work and advocacy. The timing was precipitous, coming in the midst of the COVID crisis that separated so many workers— and recordkeepers—from their offices. That timing may slow the full impact but over a decade the Labor Department anticipated that the new safe harbor will save plans approximately $3.2 billion net, annualized to $349 million per year (using a 3% discount rate)—money that could well be better spent on retirement
Perhaps no regulatory undertaking in recent memory has so occupied the focus of advisors—and advisor organizations—as the reconsiderations of the fiduciary rule. First in 2011, and then again in 2015, the Labor Department saw fit to reconfigure ERISA’s fiduciary standard, the conditions under which a prohibited transaction exemption would be granted, and the type of retirement accounts to which those standards would be applied. Ultimately upended by the Fifth Circuit Court of Appeals, with plaintiffs led by a legal team led by the man who would eventually become Secretary of Labor in an Administration that would repropose a different version— one that, unsurprisingly, struck advocates of the prior Administration’s efforts as “inadequate” to say the least. Regardless, the proposal, which by title anyway, purports
Legend
• Too Soon to Say | • Positive Game Changer | • Much Ado About Not Much | • Negative Game Changer
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10/1/20 10:36 AM
NAPA 401(k) Cyber Summit Insider
to be “Improving Investment Advice for Workers & Retirees,” not only “restored” the 1975 five-part test’s restrictions on the conditions for advice to constitute “investment advice” but included a new prohibited transaction exemption allowing investment advice fiduciaries under ERISA to receive compensation, including as a result of advice to roll over assets from a plan to an IRA. It’s not been long since the unveiling—and whatever lies ahead for the proposal in the comment period and reconsideration, it’s doubtful that it would last long should there be a change in Administrations. That, if nothing else, might explain the stance of respondents to this year’s Summit Insider—a plurality of whom say it’s “too soon to say” what kind of impact it might have—or if it comes to life at all.
Fall 2020
“Show” Time Printing/Showing Lifetime Income Disclosures on Statements
6% 15% 26%
52%
Of course it remains to be seen what might emerge when the (still) interim final rule is finalized—and what changes recordkeepers that have already made the move to produce such illustrations on their own might have to embrace, and when. Still, there’s something to be said for consistency of approach—and universality of availability. Said another way— it’s “show” time.
“BI” Ways We’ve already noted the three lifetime income enhancements in the SECURE Act, and if this one is already in play with many recordkeepers (and therefore, perhaps explains why a quarter of Summit Insider respondents say it’s “not much”), its potential to help shift the focus from accumulation to decumulation is largely unquestioned.
The Security and Exchange Commission’s Reg BI
19%
34%
21%
26%
Legend
• Too Soon to Say | • Positive Game Changer | • Much Ado About Not Much | • Negative Game Changer
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MJgraphics / shutterstock.com
28
10/1/20 9:34 AM
29 Over a decade, the Labor Department anticipated that the new safe harbor will save plans approximately $3.2 billion net, annualized to $349 million per year (using a 3% discount rate)— money that could well be better spent on retirement savings. If there’s been any regulatory measure more controversial than the Labor Department’s fiduciary “forays,” it would have to be the Securities and Exchange Commission’s Regulation Best Interest, or as it’s more affectionately known, Reg BI. The SEC’s rulemaking came nearly a decade after the Dodd-Frank legislation authorized the commission to promulgate regulations addressing the standards of care for brokers, dealers and investment advisers when providing investment advice about securities to retail customers. As with the LaborDepartment regulation, opinions split early— and harshly—along largely partisan lines, and, like its cousin, it too was taken to court, but unlike the fiduciary rule, it survived that legal challenge. Whether one thinks it goes too far—or not far enough— time will tell. Which may well
explain the varied responses above.
That said, from the outset there was concern that there might be a “run” on the retirement savings bank, putting retirement readiness for many under severe strain, if not crisis. While the crisis has not yet passed, Plan Sponsor Council of America flash polls of employers, as well as a number of industry surveys, have found that participants have, for the most part, been slow to tap into these funds. Which means, of course, that it isn’t (yet) a negative game changer—but might be yet. Depending, of course, on the “game” you’re looking to change.
Election “Nearing” The 2020 Election
Safety “Nets” COVID Relief on Withdrawals and Loans
17% 28%
21%
34%
In response to the COVID-19 pandemic, Congress moved quickly to provide workers with expanded access to their retirement accounts, basically allowing employers to increase plan loan limits, suspend loan repayments, and allow not only a new withdrawal type, but the ability to repay those amounts within a three-year period.
12% 13% 62% 13%
How one views the impact of the election likely depends on your perspective on who winds up in the White House (and when we’ll know who that is), but it should also consider the “down ticket” results that could (re)shape not only the levers of power in Congress, but—should a change in Administration result—changes in the focus and leadership of key agencies, including the IRS, DOL and SEC. What could that impact be? Time will tell. SI
Legend
• Too Soon to Say | • Positive Game Changer | • Much Ado About Not Much | • Negative Game Changer
SummitInsider_2020_Insider.indd 29
10/1/20 10:40 AM
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Fall 2020
and age gaps in the advisory profession, retirement plan coverage, the threat of proposals that look to undermine or upend the current private retirement system… and more. All in all, it seems fair to say that these are things that we may be talking about—but the time has come for more than mere talk. Here are their words—your words—on those issues… and more. State mandated plans and how to make money in these startups. The negative perception of retirement plans. The lack of engagement at the participant level. The focus of most advisors is on “where the money sits,” the higher wage earners.
O
ne of the more intriguing aspects of the Summit Insider approach is when we simply step back and hand the microphone (so to speak) to our advisor respondents—and this year, with so much going on both within and outside this business, with so much potential change ahead, we simply asked, “What is nobody talking about… that everybody should be talking about?” Almost by definition, as soon as that question is asked, it’s refuted—if only because the articulation here of those
SummitInsider_2020_Insider.indd 30
topics/ideas/themes constitutes talking about it. With more than 400 potential possibilities, it is tough to list them all here. That said, certain themes did emerge with consistency—worries about Social Security, concerns about participant education and (the lack of) financial literacy, industry consolidation, fee compression, the evils of advisors who don’t know what they’re doing, the need for retirement income offerings, worries about the impact of COVID-related distributions, the spate of recent rules from regulators, gender, racial
So many employees have taken COVID loans for $100k and won’t be able to pay them back because the payback process wasn’t clear. HSAs. I feel like the income option isn’t being set-up the way it should be. I know a lot of challenges but how do we give someone a lifetime income option without it being expensive and not good for the participant? The importance of ESG options! I recently became a huge fan and think ESG should be more widely promoted as a viable investment option. Keeping 401ks a viable option in the future.
DRogatnev / shutterstock.com
What Nobody’s Talking About...Yet
Participant education geared toward segments or age groups rather than a one size fits all education approach.
10/1/20 10:42 AM
31 Why PEPs are not the next great thing. Financial planning being the key to a worksite financial wellness program that really works.
What are red flags that the lawyers will be looking at to sue plan sponsors?
How including lifetime income projections on statements can be fully leveraged to wake-up participants and dramatically increase average deferral rates.
The future. By that I mean beyond lockdowns, pandemic and the election. Everyone is so focused on the next 12 months they are forgetting to look ahead. This is a very challenging time and is unique in our working lives but historically speaking it is a blink of an eye since the cataclysms of the 20th century and not much more since the dark ages. Humanity adapts and overcomes... this will be no different so finding the opportunities and preparing to take advantage of them should be top of everyone’s mind.
How specialist advisors could work together more instead of competing. There are enough plans to go around if we could get the generalist out of our space and make it known that everyone should work with a specialist. Teaching people personal responsibility. Stop pointing fingers and blaming... take up your own responsibility and educate yourself. What a potential game changer will be when in plan annuities become prevalent. Finally, people will be able to have a “pension” like experience from their 401(k). Consolidating legacy 401ks into the primary one the employee is working with needs to be 100 times easier and less cumbersome. Recordkeepers treading into the advisor space. The effect of more government involvement with retirement plans. Compare to how the medical insurance industry was disrupted with the ACA. Participant spousal services.
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Processes being augmented by AI, efficiencies built from leveraging technology. An advisor model that shifts to all virtual client deliverables with reduced fees. There will be a centralization, like recordkeepers, for advisors where the service is not local, face to face but plug and play centralized relationship manager type advisors delivering resources to plan sponsors and participant. Creative plan designs in the micro and small plan market is not about auto-features. It is about optimizing financial results that creates a win for both the plan sponsor and plan participant (cross-testing, Cash Balance and ESOPs).
Plan sponsors sometimes just don’t care about items we’re talking about. They are truly focused on their business. Finding cost effective solutions for small plans or start ups. The value in guaranteed income offerings to plan participants. Need for federal plan mandate (like state programs). RK consolidation which may end independent RKs. How the retirement system today is such a better fit then pensions of the past. Diversity and inclusion efforts in our industry need to be a focus. Impact on participants that not SEEING an advisor has caused. While participants have methods to reach their advisor, many do not do so until periodic meetings. These opportunities have been lost. More conversation about what a plan will look like in future and what the deliverable will look like. Also, mandatory participation at a meaningful level. Decreasing the complexity of managing plans so it doesn’t take up so much time for the sponsor. The impact of physical wellness on retirement planning. The value of investing in employee education. These
10/1/20 11:00 AM
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The negative implications of offering CITs. Everyone is focused on the fees but not everyone understands the other potentially negative aspects. dollars almost always have an ROI that is not valued at the time of selection and evaluation of an advisor. How to engage and succeed in a virtual environment. Passive fixed income in lineups are low cost but largely own inflated gov’t debt and will likely cause pain in rising rate environment. Diversity in retirement planning, diversity within participant education providers and vendors. How PEPs are going to change the landscape for the small, local recordkeeper. How consolidation will force everyone to decide to be acquired or start acquiring. Strategic conversations about company specific intentions and expectations concerning the retirement plan and how it integrates within the overall benefits picture. How recordkeepers are actually making money these days (PS— it’s not on recordkeeping). Who in their right mind believes that a vampire from a love story is the appropriate choice to be the next Batman? I mean, come on, really. How many advisors hold themselves out as experts and fiduciaries, but we too often see their work (when we inherit
SummitInsider_2020_Insider.indd 32
their plans) that cause us much concern as to what has not been done... or done in a fashion that would likely have only led to problems for the plan sponsor. I am really curious about who will service the retirement plans when the current group of allstar advisors over the age of 60 retires. I would like to see some young blood in the industry and I still don’t think there is a viable path/process for young advisors to enter the industry. The right and proper way to protect participant data. The impact of much higher taxes on retirees’ income. The negatives of CITs AND the added layers of complexity and costs associated with MEPs/PEPs. Roth default for plans with younger new hires. DOL Fiduciary Rule 2.0 in a Biden victory scenario. Open architecture in-plan guaranteed retirement income solutions available on all provider platforms (similar to how we have open-architecture stable value offerings), along with guided decision tools for participants.
all companies and not necessarily those that were furloughing and having reductions in workforce. And the need for financial literacy before people receive their first paycheck! Recruiting the next gen Advisor to the Retirement business is not getting easier. Need for bilingual advisors who understand the cultural difference of the participants. How bad customer service has gotten with some of these major name-brand recordkeepers. Fintech’s impact on the future. Is all the consolidation taking place in our industry just going to turn the plan sponsor/ participants into a commodity to just be bought and sold and they will get hurt in the end. The administrative burden of rolling over to an IRA for account under $100,000... which most are. The different ways proprietary offerings find their way into plan offerings.
The impact the race to the bottom has on choice.
That recordkeeper’s employees working from home is NOT working. The service level has gone down and the response time from an account manager has been extended to three days.
The long-term impact of leakage and why we were all quick to accept the COVID distributions, for
The needs of small plans vs. larger plans. They are different but all are treated the same. SI
9/29/20 12:55 PM
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