The defined contribution industry is all abuzz about the potential of PEPs, CITs and retirement income. And while important concepts, someone forgot to tell plan sponsors. After hundreds of training programs, there are few if any plan sponsors asking for any of these services.
Which is not to say that these services are unimportant—they are helping plans to lower fees and outsource work and liability, while enabling participants fortunate enough to have accumulated enough assets to retire without worrying about running out of money.
The problem is not just the language we use, which is riddled with acronyms and code sections, it’s about framing the issues in terms that people without ERISA or financial service training can understand. Using familiar metaphors or analogies might be more effective.
A classic example is investment policy statements that seem clear to industry professionals. An apt analogy would be equating an IPS to a recipe to bake a cake. The cook (plan sponsor), with the help of professionals (advisor), determines which cake their family (employees) might like. The funds are the ingredients with directions on how much of each should be used mindful of costs and quality.
Most plan sponsors struggle to understand the roles of their various vendors. Using a healthcare analogy, the plan sponsors are the heads of the family in charge of their family’s health—the most important decision is to hire the right doctor (advisor) who then selects the appropriate hospital (record keeper) recommending the right prescription therapy (investments). TPAs are akin to outpatient clinics.
At a recent TPSU training program, the lecturer who worked on group plans positioned PEPs as if an organization would have to be crazy or stupid not to want to outsource more work, lower the cost of audits and limit liability. Though PEPs are very valuable and will most likely become an important tool for many organizations, they are not right for everyone. There’s a reason all companies do not join a PEO.
The biggest pushback on PEPs is many plans are comfortable with their situation and relationships so why make a dramatic change that could affect customization and will take some time and work to transition. How can we better position PEPs and find the right prospects based on their needs?
Most plan sponsors do not think retirement income is an issue they need or want to address as it may bind them to terminated employees longer than they want. It may be right for certain employers that want to retain or help older employees—it might be a good retention and recruiting tool for others. But in an of itself, retirement income seems like a bridge too far for most until it can be positioned to address current and pressing issues.
And while CITs are a no-brainer because who does not want lower investment fees, we have done little to educate plans. Like auto features, it may be best to use negative options and switch out mutual funds for the same strategies with proper disclosure and education when requested.
As the demand for the convergence of wealth, retirement and benefits at the workplace by plan sponsors continues, there will be a lot of newer services that can help plan sponsors and their employees like emergency savings plans, student loan debt repayment and health savings accounts. But there will be greater adoption if we focus on the issues they address using analogies clients understand in language that plan sponsors may relate to focusing first on the problem not the solution.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
