Type: Retirement

As part of the recent 2012 PLANADVISER National Conference, panelists identified five ways plan sponsors can re-focus their goals for plan significance and success in 2013.

Step 1 — Market Your Plan & Its Resources

Plan sponsors should be proactively reaching out to help participants make informed decisions concerning their retirement. Plan sponsors should ask themselves: Is the plan currently being communicated to participants as a valuable component of the companys employee benefits package? If not, how can we better promote the plan? A key part of plan promotion is clearly and prominently sharing the available resources and guidance to which eligible employees have access. Retirement investing is a daunting prospect. Your internal marketing is key to ensuring successful participation in the plan. A variety of participant services can be employed to support a successful, high-touch, paternalistic campaign.

Pinnacle provides many of its retirement plan clients with participant concierge services that allow eligible employees to contact our consultants directly, which is particularly valuable when entering the enrollment window. Direct engagement is proven to lead to more positive enrollment numbers. Barriers to entry are more easily overcome in a one-on-one setting with an expert who can help participants comprehend the value of high deferral rates, suitable asset allocation, and consolidation through rollover capture.

Step 2 — Maximize Plan Design

What is the goal of this plan? Is it altruistically maximizing financially sound retirement experiences for participants or is it limiting sponsor liability? Ideally, a plan sponsor can achieve both objectives, and having a plan design optimized for your companys specific goals is one of your most valuable instruments. Many plan features can be altered to foster improved outcomes. As plan sponsor, you can:

• Increase your match or optimize the match formula
• Simplify investment options
• Eliminate or restrict loans
• Implement automatic enrollment and/or deferral increase features

Plan sponsors should look to their qualified plan consultants for the cost-benefit analysis of any potential changes to ensure that you have the information needed to make the best strategic decision.

Step 3 — Focus on Benefit Adequacy

Participants need to be educated on the realities and the necessity of retirement planning. Participants often have expectations that are not entirely realistic, given that many are woefully underfunded and/or under-informed when it comes to their retirement. The media depiction of retirement as daily golf, entertainment, and island vistas leaves many thinking that theyll never achieve such idyllic retirement goals so why bother, while others blindly assume they certainly will retire like this yet dont actually take the requisite actions to achieve it. Even if a modest retirement lifestyle is targeted, participants still often save at an inadequate rate.

Automatic features like automatic enrollment or automatic deferral increases allow employee inertia to work for the plan and for the employee, rather than against them. Setting the default deferral rate to a higher percentage or using auto increases to get there over time can get participants to adequate savings rates that allow for a realistic chance of achieving their desired retirement lifestyle.

While generally beneficial, automatic features are not right for everyone. Plan consultants can help sponsors carefully weigh the consequences of automatic implementation, such as the potential additional administrative burden and the increased outlay for plan sponsors who provide matching contributions.

Step 4 — Understand Plan Costs

Now that fee disclosure regulations have gone into effect, plan costs should be readily available, more transparent, and meaningful to both plan sponsors and plan participants. Often, the majority of a plans operating costs are borne by the participants in the form of investment or other asset-related charges.

Most participants are not likely to properly interpret the fee disclosure or implement prudent changes to their investments, so plan sponsors should be expected to identify charges that may be excessive, and take steps to ensure fees are reasonable, particularly for those borne by participants. Fees can take a number of forms and can be excessive in any or all of them. Examples of charges to re-evaluate are:

• Expense Ratios (participant borne): Funds come in a variety of share classes ranging from expensive to cheap
• Wrap fees or asset-based charges (participant borne): Basis point charges typically applied to all assets in the plan and netted from returns
• Per head fees (participant or sponsor borne): $x per head charged annually or quarterly
• Base fee (sponsor borne): $x per plan charged annually or quarterly

Step 5 — Evaluate Your Target Date Funds & Understand the Risks

Dont get too caught up with returns alone. Work with your plan consultant to assess and consider risk levels, glide paths, asset class coverage, and equity/bond exposure ratios before deciding on a target date fund series which best reflects the needs of your participant demographic. Communicate effectively that target date funds are a long-term investment, and that while they are a one stop solution, they are not designed to unilaterally prevent any losses. If participants understand the associated risks, they can better select the appropriate fund, rather than rely simply on one metric like their age. They will also be more likely to ride out difficult markets.

If off the shelf target fund series do not meet the needs of the plan, consider custom target date portfolios (if the recordkeeping platform allows). The evaluation and selection of target date funds should be specifically addressed in a plans Investment Policy Statement, as the typical guideline may not be appropriate. At Pinnacle, we are proponents of target date funds, but take their selection and monitoring seriously, with careful consideration of employee demographics and investment sophistication applied during the selection process.

Pinnacle plan consultants are ready to assist you with all aspects of achieving plan success, from enhancing investment opportunities for participants to protecting plan fiduciaries from liability and loss. Remember, your retirement plan can be a powerful recruiting tool for your company and it is a benefit that your employees will utilize throughout their lifetime. Please contact us with any questions you might have about maximizing your 2013 plan.

2013 Plan Limits

Cost of living adjustments have been made and 2013 will afford participants the opportunity to save an additional $500 in deferrals. For those participants who intend to maximize contributions, be sure to communicate the new limits so adjustments can be made if necessary.