Growing up, I was a pessimist. I don’t why, but I let any little thing get to me and I realized that being negative, scares people away.
That’s why I recommend when dealing with potential clients, don’t harp on the negative that you see with the plan. Always come from a positive view and how your services could go a long way in improving their plan. Plan decisionmakers have egos and no one wants it rubbed in their face that made poor decisions even it was clear that they made poor decisions.
Years ago, a certain third-party administrator (TPA) was going through a very public crisis and every other advisor and TPA out there were making phone calls to this TPA’s clients and al;l they did was sprouting negativity about this TPA. I can’t imagine that these providers got many clients that way because selling is all about what you can do for the client, not how badly the current plan provider is doing. You need to differentiate yourself from the incumbent provider, but it has to come from a positive standpoint.
One of the most forgotten parts of a 401(k) plan is the automatic rollover and who the automatic rollover provider is. I was going through a Department of Labor audit on a terminated plan and they asked me how the automatic rollover provider was hired and what the fees are. Unlike most plan sponsors, I knew the answers, but I’m not like most plan sponsors. I think there will be greater scrutiny to who the provider is and what the costs are, as well as how much these automatic rollover participants are earning in their IRA.
So that is where my friends at FPS Trust come in. They will be presenting at That 401(k) National Conference and have been around most of our regional events offering their IRA solution. If you haven’t had the opportunity of attending these events, I suggest you reach out to Jeff Linkowski there, to see hoe beneficial as a third party administrator or financial advisor that you can develop a great solution that could be turned on as a voluntary IRA where everyone including the participant makes out.
One of my favorite Yiddish words is schnorrer. While it means beggar or sponger, it’s essentially a cheapskate who wants to chisel you by getting something for nothing.
There is nothing wrong with potential clients trying to get a bargain by negotiating fees. I often discount fees as long as potential clients ask and it’s reasonable. The problem is that you have to draw the line somewhere because your work and effort deserve to be compensated. I think what makes someone wanting a discount and being a schnorrer is that the schnorrer doesn’t care how insulting they are. A perfect example is selling sponsorships for That 401(k) Conference. If people book multiple events and ask for a discount if they are a new sponsor, I don’t have a problem with discounting the $1500 speaking fee per event. Yet when a plan provider invited me for lunch to their private club and said he only had a budget for $250 for my $500 supporting sponsorship, I took a pass. Don’t invite me to your private club and claim poverty.
Dealing with chiselers is part of the business, but I think you have to draw a line and realize that there are times you can’t make a deal with a chiseler because their offer might be insulting or just too low and you know you will always have to deal with them, every step of the way.
When fee disclosure regulations were implemented, there were a few industry chicken littles that suggested that the disclosures would be a race to zero and only the cheapest providers would win out. History has proven that while fees have gone down, there hasn’t been that race to zero because plan sponsors are willing to pay more for more service.
With a lot of consolidation in the retirement plan business, there are industry chicken littles that suggest that only the largest plan providers will do because of their mass, lower cost, and bells and whistles with their services. I think there is room for everyone.
Compare it to beer. When I was a student, we would drink whatever was on sale at the local 7-11 (usually a Molson or Michelob), I avoided Budweiser and some of the cheaper brands like the plague. When Samuel Adams started hitting the stores and started the microbrewery renaissance (my village now has two small breweries), it didn’t mean people stopped buying Bud and Coors Light. There are enough budget drinkers or beer drinkers who don’t care about taste (yes, I’m a beer snob) that still buy the budget brews. Bud Light is the best selling beer in the United States for quite some time. The point besides making me thirsty for a Boston Lager is that there is enough space out there for every provider of every size because plan sponsors have varying asset sizes and budgets. There is enough space at the table for you, it’s up to you how to handle the space.
Investment Company Institute conducted a study that shows that 56% of Defined Contribution plan participants agree that they probably wouldn’t save for retirement if they didn’t have a plan at work.
What does that tell you as a plan sponsor or a potential plan sponsor? It tells you that a 401(k) plan is an effective savings vehicle for you and your employees. While health insurance is probably the top benefit you could provide, a 401(k) plan comes #2. Despite all the criticisms, a 401(k) plan is still the most effective savings vehicle for your employees and your wallet.
My latest article for JDSupra.com can be found here.
The SECURE Act created much-needed change to the safe harbor non-elective contributions, making it more of a weapon to combat failed discrimination testing. Previously, a plan sponsor could only adopt the non-elective contribution prior to the Plan Year with a notice. Now, the contribution can be added at any time during the year and even after the Plan Year has ended if the plan sponsor ups the contribution to 4% of pay (but the plan still needs to pass the matching ACP test if adopted after the year). Regardless of the timing, the notice requirement is gone for good.
For clients that have testing issues because of their demographics, this is something they should know about. The increased flexibility of adding the non-elective could go a long way in minimizing the need for deferral refunds or corrective QNEC contributions.
As a plan sponsor, you need to make sure that participant beneficiary forms are up to date. It’s not enough that you make sure that every participant has filled one out, you also have to make sure that they’re updated. Family lives and situations change, so it should make sense that what a participant may have selected as a beneficiary might change because of marriage, divorce, or death.
For any plan education and enrollment meetings, I would stress for the participants to update their beneficiary information because as an ERISA attorney, one of the most stressful jobs in trying to determine who a beneficiary is if an enrollment form is missing or there are issues that might threaten the validity of an executed form (such as a new marriage).
I’m not a fan of annuities, especially in 401(k) plans. Yet, it seems that the insurance industry got their say with the addition of annuities in the SECURE Act.
The SECURE Act includes three law additions that might expand the plan sponsors’ ability to offer annuities and other lifetime income products. First, it establishes an in-plan retirement income safe harbor that protects employers from litigation based on their selection of annuity providers. The SECURE Act also creates a new requirement that the Department of Labor (mandate and standardize the provision of recurring lifetime income projections for individual participants; and it institutes an in-plan annuity portability requirement, such that if an annuity offering is removed from a plan menu, participants must be allowed to roll that annuity investment into an IRA without penalty.
My concern is that bringing back annuities into 401(k) plans is only going to benefit the insurance industry.
There are many choices in developing options for a 401(k) plan and certain features such as automatic enrollment and Roth 401(k) have only been law since 2006. 14 years later, it would not be surprising that the percentage of plans adopting these options would level off.
According to the Plan Sponsor Council of America’s PSCA’s 62nd Annual Survey of Profit-Sharing and 401(k) Plans, 401(k) sponsor adoption of automatic enrollment features, Roth options, and target-date funds seems to be leveling off.
This should come as no shock because you’re never going to get 100% adoption of these features and there are certain stumbling blocks for individual plan sponsors to adopt them. A perfect example is automatic enrollment, certain plan sponsors are happy enough with their participation rates or don’t want the perceived nuisance of this feature.