Saturday, September 26, 2015

6 Questions For Your Next 401(k) RFP

RFPs, or requests for proposals, come in all shapes and sizes. Mostly they are long, drawn out affairs, frequently copied from templates drawn up to capture a broad sense of capabilities. The problem is, for most plan sponsors it’s akin to going shopping for a car armed with Chilton’s auto repair manual (that said, if you need one, a quick Google search on “401k RFP” will turn up plenty).

So, aside from all the general information that you’ll want to get from every provider during the RFP process – the size of their business, the quality, tenure and turnover of their key staff, their capabilities, service structure, years and investment in “the business,” fees, services offered and references, there are some questions that aren’t in every RFP — but to which the answers can be enlightening.

1. What plan design changes would you recommend, and why?

This question has two payoffs. First, in order to recommend changes, they have to know what your current plan looks like. Secondly, it gives you a chance to evaluate the quality of their recommendations. As an extra bonus, if the changes recommended indicate they don’t know what your current plan looks like, that tells you something as well.

2. How many other clients like me do you have?

There are many ways to answer the “like me” question — comparable size, similar workforce demographics, geographic proximity, etc. Hone in on the ones that have similar plan provisions (particularly match, eligibility, and withdrawal) and employee population sizes. Then get their contact information.

3. Are there any restrictions on fund choices?

Many providers place boundaries on the funds available on their platform. Some of this is in the interests of efficiency in education and processing, some of it doubtless ease their evaluation of suitability and review, and some of it may simply facilitate revenue-sharing structures. Regardless, if there are restrictions as to which fund(s), particularly proprietary offerings, must be on your menu, or in what proportion, you need to understand that upfront. And understand why.

4. What’s your preferred QDIA?

Admittedly, everybody doesn’t have a “preferred” qualified default investment option (at least not labeled as such). That said, industry surveys suggest that target-date funds are the most common default fund option today, though managed accounts are making inroads. Knowing what’s available (both what type, and which specific one(s) — and what’s “preferred” — can give you insights not only as to the breadth of offerings, but the perspective of your potential partner on what may well be the primary investment selection of participants in your plan.

5. How — and how much — do you and your other partners get paid?

Sure, fees will be part of any self-respecting RFP response, though since such things are often variable, you’re more likely to get a fee schedule than a fee quote — particularly during the “getting to know you” phase that accompanies most RFPs. Still, it will be worth your time to find out what variables need to be quantified to provide a precise calculation, and then provide them. Because there’s nothing like a bottom line number to help you focus on the bottom line.

As for the “how” — revenue-sharing arrangements, and the potential conflicts of interest that can be obscured by some arrangements — are a current and growing litigation concern. Knowing not only how much, but how, can shed light on potential issues before they become real ones.

6. Please provide the contact information for three clients that have left you in the last 18 months.

It’s normal, and natural, to ask for references — and you should. But references are one thing; ex-clients are another. It’s an awkward question to ask, particularly at the outset of a potential relationship. But we’ve all lost clients for reasons good and bad, and there’s value in talking to someone who, for whatever reason, has opted to go elsewhere, if only to find out how the provider handled the transition out.

Odds are you’ll get the names of clients who left via merger or acquisition, not those who have actually fired them. But you never know. And you’ll never know until you ask.

Got some other suggestions? Post them in the comments section below. Or email me at

- Nevin E. Adams, JD

Saturday, September 19, 2015

5 Things Plan Sponsors Don’t (Always) Do — But Should

There is frequently a difference between doing all that the law requires of a plan sponsor and doing everything that could be done.

Here are five things that plan sponsors don’t always do — but should.

1. Have a Plan/Plan Investment Committee.

ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. ERISA does not require that you make those decisions by yourself — and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it.

However, having a committee for having a committee’s sake can not only hinder your decisions — it can result in bad decisions. Make sure your committee members add value to the process. (Hint: Once they discover that ERISA has a personal liability clause, casual participants generally drop out quickly.)

2. Keep Minutes of Committee Meetings.

There is an old ERISA adage that says “prudence is process.” However, an updated version of that adage might be “prudence is process — but only if you can prove it.” To that end, a written record of the activities of the plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations.

More significantly, those minutes can provide committee members — both past and future — with a sense of the environment at the time decisions were made, the alternatives presented, and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted — properly documented, of course.

3. Have an Investment Policy Statement.

While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement, the reality is that the law does not require one, and thus, many plan sponsors — sometimes at the direction of legal counsel — choose not to put one in place. Of course, if the law does not specifically require a written investment policy statement (IPS) — think of it as investment guidelines for the plan — ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) will find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing, and not crafted at a point in time when you are desperately trying to make sense of the markets. In sum, you want an IPS in place before you need an IPS in place.

It is worth noting that, though it is not legally required, Labor Department auditors routinely ask for a copy of the plan’s IPS as one of their first requests. And therein lies the rationale behind the counsel of some in the legal profession to forego having a formal IPS; because if there is one thing worse than not having an investment policy statement, it is having an investment policy statement — in writing — that is not followed.

4. Remove ‘Bad’ Funds from the Plan Menu.

Whether or not the plan has an official investment policy statement (IPS), plan sponsors are expected to conduct a review of the plan’s investment options as though they do. Sooner or later, that review will turn up a fund (or two) that no longer meets the criteria established for the plan. That’s when you will find the true “mettle” of the investment policy; will the plan sponsor/committee have the discipline to do the right thing and drop the fund(s), or will they succumb to the very human temptation to leave it on the menu (though perhaps discouraging or even preventing future investment)? Oh, and make no mistake — there will be someone with money in that fund. Maybe even a senior executive. Still, how can leaving an inappropriate fund on your menu — and allowing participants to invest in it — be a good thing?

5. Monitor Providers on a Regular Basis.

In some sense, we all “monitor” the performance of our plan provider all the time. Is the website available when people try to access it? Do checks and statements arrive on time? Are the balances displayed accurate? The reality is that, for most of us, no news is seen as “good” news. After all, if the answer to any of the foregoing questions was “no,” we’d not only know about it, we’d be complaining about it (after fending off our own set of complaining phone calls). Plan sponsors have a very full-time job dealing with a myriad of things that are “broken” — why go looking for trouble?

At least once a year — no matter how well things are going — it’s worth determining if your plan has access to the new services that have come online since you converted; that you are getting the advantages of the most current thinking about costs and fees; and how your plan’s participation, deferral, and asset diversification stack up. And yes, even with a reliable provider, you may have to ask.

Beyond that, every three to five years (sooner if there are problems, of course), plan sponsors should go through a formal request for information (RFI) or request for proposal (RFP) process—on your own, or with the help of an adviser (who undoubtedly has more experience with such things).

Two other things to keep in mind: First, if you are a fiduciary, and you feel that you lack the expertise to make those decisions, you will of course want — and, in fact, are expected — to hire someone with that professional knowledge to help.

Secondly, while fiduciaries are often reminded of the things they shouldn’t do, recent litigation trends suggest that they’re just as likely to get sued (if not more so) for failing to do something they should be.

- Nevin E. Adams, JD

Saturday, September 12, 2015

10 Ways the Class of 2019’s 401(k) Will Be Different

Time marches on, and each generation comes to the workplace with its own unique set of experiences and expectations.

Each August since 1998, Beloit University has published the Beloit College Mindset List, providing a look at the cultural touchstones that shape the lives of students entering college in the fall. For example, the class of 2019, who were for the most part were born in 1997, have never licked a postage stamp, never known a world without Google or Splenda, and have grown up in a world where wi-fi is an entitlement.

Despite those differences, the class of 2019 will one day soon be faced with the same challenges of preparing for retirement as the rest of us. They’ll have to work through how much to save, how to invest those savings, what role (if any) Social Security will play, and — eventually — how and how fast to draw down those savings in retirement — whatever, and whenever, that turns out to be.

Here are 10 things I think we’ll be able to say about most of the Class of 2019 when it enters the workforce:
  • They’ve never had to wait to be eligible to start saving in their 401(k) (their parents generally had to wait a year).
  • They’ve never had to sign up for their 401(k) plan (their 401(k) automatically enrolls new hires).
    They’ve never had to make an investment choice in their 401(k) plan (their 401(k) has long had a QDIA default option).
  • They’ve never had to rebalance their 401(k) account (their 401(k) default option was an asset allocation fund or managed account, automatically rebalanced by professionals).
  • They’ve always had fee information available to them on their 401(k) statement (it remains to be seen if they’ll understand it any better than their parents).
  • They’ve always known what their 401(k) balance would equal in monthly installment payments.
  • They’ve always been able to figure out how much they need to save for a financially secure retirement (though they may not be any more inclined to do so than their parents).
  • They’ve always been able to transfer their balances online and on a daily basis (and so, of course, they mostly don’t).
  • They’ve always had an advisor available to answer their questions.
And perhaps most importantly, they’ll have the advantage of time, a full career to save and build, to save at better rates, to invest more efficiently and effectively.

- Nevin E. Adams, JD

Friday, September 11, 2015

Never Forget

Early on a bright Tuesday morning in 2001, I was in the middle of a cross-country flight, literally running from one terminal to another in Dallas, Texas, when my cell phone rang.

It was my wife. I had been on an American Airlines flight heading for L.A., after all - and at that time, not much else was known about the first plane that struck the World Trade Center. I thought she had to be misunderstanding what she had seen on TV. Would that she had….
That day, when family and friends were so dear and precious to us all, I spent in a hotel room in Dallas. It was perhaps the longest day - loneliest night - of my life. In fact, I was to spend the next several days in Dallas – there were no planes flying, no rental cars to be had – separated from home and family by hundreds of insurmountable miles for three interminably long days. As that week drew to a close, I finally was able to get a rental car and begin a long two day journey home.  While it was a long, lonely drive, it gave me a lot of time to think, though most of that drive was a blur, just mile after endless mile of open road.

There was, however, one incident I will never forget. Somewhere in the middle of Arkansas, a group of Hell's Angels bikers was coming up around me. A particularly scruffy looking guy with a long beard led the pack on a big bike - rough looking. But unfurled out behind him on the bike was an enormous American flag. At that moment, for the first time in 72 hours, I felt a sense of peace - the comfort you feel inside when you know you are going - home.
All these years hence, I can still feel that ache of being separated from those I love – and yet still remember the warmth I felt when I saw that biker gang drive by me flying our nation’s flag. On not a few mornings since that awful day, I think how many went to work, how many boarded a plane, not realizing that they would not get to come home again. How many sacrificed their lives so that others could go home. How many still put their lives on the line every day – here and abroad - to help keep us and our loved ones safe.

We take a lot for granted in this life, nothing more cavalierly than that there will be a tomorrow to set the record straight, to right wrongs inflicted, to tell our loved ones just how precious they are. As we remember that most awful of days, and the loss of those no longer with us, let’s all take a moment to treasure what we have – and those we have to share it with still.

-          Nevin E. Adams, JD

Saturday, September 05, 2015

5 Things You CAN Do After a Market Correction

By now, you’ve heard — and perhaps dispensed — what appears to be the “common wisdom” about the recent market tumult: “stay the course,” “ride it out,” and my personal favorite, “don’t just do something, stand there.”

For all our industry’s long-standing concern about participant inertia, in times like these the inclination to “do nothing” is undoubtedly to the benefit of most participants. That said, one can well imagine that those who are turning to their advisors for help and guidance (wonder what the robo-advisors are saying?) might be a little frustrated with the admonition that the best thing for them to do right now is… nothing.

Early indications are that most retirement plan participants will — again — ride this one out (though there are some exceptions. But, hey — while the markets have your attention, here are five things participants can, and should, do:

Check your account balance. While a lot of experts will tell you to avoid looking at your account right after a big drop in the markets, if you’re making individual fund choices, it’s probably worth checking out how your account is currently invested. If you haven’t checked in a while, you might find that it’s gotten “out of balance” from your original investment selections.

Get started on rebalancing. While this may not be a great time to rebalance your entire account, you can start by changing the investment elections of new contributions, rather than transferring existing balances. It will take longer to realign the entire account, but at least you aren’t realizing those as-yet-unrealized losses.

Increase your current deferral rate. This is the biggie. When you think about just how much cheaper those retirement plan investments are compared with a few days ago, it’s hard to pass up that kind of bargain. More so if you aren’t yet saving at the maximum level of the match.

Look into automated rebalancing. If you still make and maintain individual investment fund choices in your retirement account, it can be hard to pick the best time to make a change. (Hint: a period of extreme market volatility is almost never the best time.) However, the vast majority of providers now have in place mechanisms that will, at some preset frequency (e.g., monthly, quarterly, or annual), automatically rebalance those accounts in accordance with your established investment elections. It’s a good way to keep things in balance without having to worry (or remember) about it.

Think about getting some professional help. Odds are, even if you like keeping up with the markets, it’s not your day job. A good, trusted advisor is always a great option, but you might find it useful to look into a solution that is professionally managed all the time — such as a balanced fund, target-date fund or managed account option.

So, yes, there are some things you can do after a market correction, or even on a regular basis. And one more thing: There’s no time like the present.

- Nevin E. Adams, JD