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A vAriety of topics discussing the U.S. Retirement SYstem

CONFEROISSUE NO. 16

A quarterly publication of Confero Fiduciary Partners

Editor ’s Letter | The Roland Roundup | Partner Spotlightalso inside

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Max P. KesselringEditor-in-Chief

With the change of seasons comes the 16th issue of Con-fero, which is fo-

cused on the U.S. Retirement Sys-tem. We followed the most current trends in the industry to bring you the most relevant and pertinent information in retirement today. As a thought leader in fiduciary advice, we want to make sure that we keep you informed on current happenings in the U.S. retirement landscape, where it has succeeded, and where it has fallen short.

We have collected a great group of contributors for this publication. We have everyone from attorneys, to asset managers and fiduciary advisors. For some, it is their first time contributing to the magazine, while others are long-time participants. So we have a very diverse lineup to talk to you about topics and trends within U.S. retirement.

In this issue, we discuss various topics, including investment strate-gies and what we have learned from the past 10 years of the Pension Protection Act (PPA), financial literacy, uncovered private sector workers, and retirement readiness.

If you would like to learn more about a topic that has been covered, or if you have a question on one of the articles, please email me at [email protected].

Publisher Confero Fiduciary Partners

PartnersFiducia Group, LLC

Westminster Consulting, LLC

Editor-in-ChiefMax Kesselring

[email protected]

Editorial StaffRoland Salmi

[email protected]

Sheila [email protected]

Creative DirectorMax Kesselring

[email protected]

Staff ContributorsJim Bartoszewicz, Gabriel Potter, Roland Salmi

Featured Contributors Michelle Capezza, Aimee DeCamillo, Robert Goldman, Alan Hahn, Anne Lester, Geoffrey

T. Sanzenbacher, Steve Utkus

Online/Digital OperationsJacob Button

[email protected]

For a copy of the magazine, please email [email protected] or

call 800-237-0076.

The information contained in this magazine is for gen-eral information purposes only. The information is pro-vided by Confero Fiduciary Partners (CFP) and, while every effort is made to provide information that is both current and correct, CFP makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or avail-ability with respect to the magazine or the information, products, services, or related graphics contained within the magazine for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will CFP be liable for any loss or damage, including, without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever aris-ing from loss of data or profits arising out of, or in con-nection with, the use of this magazine.

Please note that the articles included in this publication are general information and are not intended as

legal advice, nor should you consider them as such.

Confero | 1Fall 2016

contentsConFero staFF Contributors

Editor’s LEttEr • Max KESSELRing

CoNfEro staff CoNtributors

fEaturEd CoNtributors

5 KEys to a smart rEtirEmENt stratEgy • annE LESTER

10 yEars aftEr thE PPa — rEtirEmENt rEvoLutioN, rEady for EvoLutioN • aiMEE DECaMiLLo

thE systEm of EmPLoyEr-ProvidEd rEtirEmENt bENEfits is at a Crossroads • MiChELLE CaPEzza

thE ENd of “ChoiCE ovErLoad” • steve UtkUs

worKforCE of thE futurE: is your PLaN rEady? • AlAn HAHn

imProviNg rEtirEmENt rEadiNEss • GAbrIel Potter

mEEt wEstmiNstEr CoNsuLtiNg, LLC rocHester, nY

PartNEr sPotLight • thomas f. Zamiara WestmInster consUltInG, llc

thE roLaNd rouNduP • rolAnd sAlmI

fiNaNCiaL LitEraCy: doEs your statE maKE thE gradE? • robert GoldmAn

statE iNitiativEs to CovEr uNCovErEd PrivatE-sECtor worKErs • GeoFFreY t. sAnzenbAcHer

401(K) EvoLutioN aNd thE rECENt CoNsoLidatioN of

rECordKEEPErs • JIm bArtoszeWIcz

Roland Salmi, MBAWestminster Consulting, llC

Roland Salmi is an Associate Analyst at Westminster Consulting, LLC, in Rochester, NY. He is responsible for performance analysis, client projects, and Senior Consultant support.

Roland earned a Bachelor of Science degree in psychology and an Associate of Science degree in business administration from Elmira College and an MBA with concentrations in corporate finance and accounting from St. Bonaventure University.

Gabriel Potter, MBA, AIFA®

Westminster Consulting, llC

Gabriel Potter is a Senior Investment Research Associate at Westminster Consulting, LLC, where he is responsible fordesigning strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,Fiduciary News, HR Online, and Rep Magazine. Prior to joining Westminster, Gabriel worked as an InstitutionalConsulting Analyst with Graystone Consulting – the institutional business unit of Morgan Stanley Smith Barney.

Gabriel earned his MBA with concentrations in corporate finance and computers and information systems from theUniversity of Rochester’s William E. Simon School of Business and his Bachelor of Arts degree in economics and acertificate of business management from the University of Rochester. He currently holds a Series 66 license from theNASD and an Accredited Investment Fiduciary Analyst designation (AIFA®) from the Center of Fiduciary Studies.

Max KesselringWestminster Consulting, llC

Max Kesselring is the Marketing & Public Relations Coordinator at Westminster Consulting, LLC, in Rochester, NY. He is involved in social media, external communications, and Senior Consultant support. He is the editor-in-chief and graphic designer for Confero.

Max is a graduate of the State University of New York at Fredonia, where he earned his bachelor’s degree in communications, more specifically media management, as well as a minor in visual arts and new media.

Jim Bartoszewicz, AifA®, C(K)P®, JD, QPFCFiducia Group, llC

Jim Bartoszewicz is the Chief Compliance Officer of Fiducia Group and Principal of the firm. He is also a member of Fiducia Group’s investment committee. In addition to serving clients with investment advice and fiduciary oversight, he brings extensive experience to his defined benefit, ESOP and non-qualified plan consulting services. His 30 years of industry experience have spanned regional and international retirement services organizations.

Jim maintains his legal license in Pennsylvania and is a C(k)P® (Certified 401(k) Professional) in good standing with The Retirement Advisor University, in collaboration with UCLA Anderson School of Management Executive Education. Jim is also a Qualified Plan Financial Consultant (QPFC) through the American Society of Pension Professionals and Actuaries (ASPPA) and an Accredited Investment Fiduciary Analyst™ (AIFA®) through the Center for Fiduciary Studies.

He holds a Bachelor of Science degree in applied mathematics from Indiana University of Pennsylvania and a juris doctorate from Duquesne University.

2 | Fall 2016 Confero | 3

Aimee DeCamillot. rowe Price retirement Plan services

Michelle Capezza, ESQ.epstein becker Green

Anne LesterJ.P. Morgan asset Management

Robert Goldmantransamerica retirement solutions

Steve UtkusVanguard Group

Alan Hahn, ESQ.davis & Gilbert, llP

Geoffrey T. SanzenbacherCenter for retirement research at boston College

Anne Lester is a portfolio manager and Head of Retirement Solutions for J.P. Morgan Asset Management’s Global Investment Management Solutions, where she is responsible for advancing the firm’s market-leading retirement investment product offering and thought leadership. Ms. Lester has also been responsible for the development of the firm’s defined contribution asset allocation strategies, including the JPMorgan SmartRetirement target date funds and the firm’s Dynamic Withdrawal strategy. She is also a member of the portfolio management team of the JPMorgan Income Builder Fund. Prior to joining the firm in 1992, Anne was awarded a Fulbright Scholarship in 1990 and spent over a year in Tokyo, working for a member of the Japanese Parliament. Previously, she worked for the Senate Governmental Affairs Committee.

Aimee DeCamillo is a vice president and head of T. Rowe Price Retirement Plan Services. Prior to assuming her current position in 2014, she was head of product and marketing in Retirement

Plan Services for T. Rowe Price. Her current responsibilities include the growth and management of T. Rowe Price’s institutional retirement business representing over 3,500 companies and over

$150 billion in assets under administration. Aimee earned a Bachelor of Arts in international relations from Michigan State University. She is a licensed Securities Principal and holds the

Chartered Retirement Planning Counselor designation. She is also a board member for the Society of Professional Asset-Managers and Record Keepers (SPARK), the Employee Benefit

Research Institute (EBRI), and the vice chair of the Secure Retirement Institute.

Michelle Capezza is a Member of Epstein Becker Green in the Employee Benefits and Health Care and Life Sciences practices, and co-leads the Technology, Media, and Telecommunications service team (visit the blog at www.technologyemploymentlaw.com.). She practices law in the areas of ERISA, employee benefits, and executive compensation and provides counsel on qualified retirement plans, ERISA fiduciary responsibilities, nonqualified deferred compensation arrangements, employee welfare benefit plans, equity/incentive programs and benefits issues in corporate transactions across various industries, including financial services, health care, technology, media, telecommunications, hospitality, and retail. Ms. Capezza was recommended for her work in employee benefits and executive compensation on a national level in The Legal 500 United States (2013, 2014 and 2016) and selected to the New York Metro Super Lawyers and Top Women lists (2014, 2015) in the area of Employee Benefits.

Robert Goldman is a Regional Vice President – Institutional Markets, New York Regional Office at Transamerica Retirement Solutions. His responsibilities include supporting the marketing and

sale of Transamerica’s retirement plan services to both corporate and not-for-profit retirement plan sponsors. Robert has over 25 years of extensive retirement plan sales and consulting

expertise. For more about him, visit LinkedIn. Robert has a bachelor’s degree in mathematics from the University of Rochester. He is a registered principal with Transamerica Investment

Securities Corp. (TISC) in Harrison, NY, and holds his insurance licenses.

Geoffrey T. Sanzenbacher is a research economist at the Center for Retirement Research at Boston College. He conducts research on health insurance coverage, job mobility, the shift from defined benefit to defined contribution pensions, and the pension participation decision, and has an interest in how these issues relate to low income workers. Before joining the Center, he earned a doctorate in economics from Boston College in the fields of labor economics, applied econometrics, and applied microeconomics. He worked for several years after finishing his Ph.D. as an economic consultant at Analysis Group in Boston. He also currently teaches intermediate microeconomics and the economics of inequality at Boston College.

Steve Utkus is a principal and director of Vanguard Center for Retirement Research. The Center conducts and sponsors research on retirement savings in the United States, with an emphasis on private defined

contribution retirement plans. Its work is designed to assist employers, consultants, policymakers, and the media in understanding developments in the U.S. retirement system. Mr. Utkus’s research interests also

include behavioral finance and the role of psychology in household financial decisions. Mr. Utkus earned a Bachelor of Science degree from the Massachusetts Institute of Technology and an MBA from The

Wharton School of the University of Pennsylvania. He is a member of the advisory board of the Wharton Pension Research Council and is currently a visiting scholar at Wharton. Mr. Utkus is a member of the

board of trustees of the Employee Benefits Research Institute in Washington, D.C.

Alan Hahn is a partner in and co-chairs the Benefits & Compensation Practice Group of Davis & Gilbert, LLP. His practice is devoted to advising clients in the design and implementation of creative, unique and tax-effective employee benefit plans and programs.


Featured ContributorsAs they appear in this edition

note: the articles included in this publication are general information and are not intended as legal advice, nor should you consider them as such. You should not act upon this information without seeking professional consent.

u.s. retirement system

The Roland Roundup is a compilation of court cases that have recently been in the news. Each case focuses on a violation of ERISA guidelines.

The outcomes of these cases may have a lasting impact on the fiduciary environment.

Charlene F. Mcdonald et al. v. edward d. Jones & Co. l.P. et al. Morgan Stanley was sued by a former participant in the company’s 401(k) plan for excessive retirement-plan fees and self-dealing on the part of the company, which allegedly enriched itself at the expense of employees’ retirement savings by offer-ing proprietary investment funds. The plaintiff is seeking $150 million on behalf of a proposed class action lawsuit. (Pending resolution.)

Manganaro, John. “Edward Jones Latest Target of Self-Dealing ERISA Suit.” Plan Sponsor. Asset International, 22 Aug. 2016. Web. 13 Sept. 2016.

Cryer v. Franklin resources inc. et al.Franklin Resources Inc. employees have sued the company for including in-house mutual funds in their 401(k) plan when bet-ter performing and lower-cost funds allegedly were available. In Cryer v. Franklin Resources Inc., Franklin Templeton invested hundreds of millions of its workers’ retirement dollars in funds managed by the company and its subsidiaries. This decision caused them to lose more than $64 million in retirement savings, the workers allege. The workers challenge the decision to have a money market fund in the 401(k) plan instead of a stable value fund that would have provided “inflation-beating returns.” This decision alone could have cost the workers more than $9 million in retirement savings. (Pending Resolution.)Moore, Rebecca. “Franklin Templeton 401(k) Plan Latest Cited in Self-Dealing Suit.” Plan Sponsor. Asset International, 02 Aug. 2016. Web. 13 Sept. 2016.

david b. tracey et al. v. Mit, nYu, Yale, et al.Three prominent universities including – the Massachusetts Institute of Technology, New York University and Yale — were sued in August for excessive fees in their retirement plans. Each plan holds more than $3 billion in assets, and the plans are be-ing individually sued by a number of their employees in cases seeking class-action status. The difference is in this suit the target is 403(b) plans. The complaints allege the universities, as plan sponsors, failed to monitor excessive fees paid to administer the plans and did not replace more expensive, poor-performing investments with cheaper ones. Had the plans eliminated their long lists of investment options and used their bargaining power, the participants could have saved tens of millions of dollars. (Pending resolution.)Manganaro, John. “University DC Plans Latest Target of ERISA Complaints.” Plan Sponsor. Asset International, 09 Aug. 2016. Web. 13 Sept. 2016.

Federal investigationFederal regulators say employees at Wells Fargo created millions of fake bank accounts and credit card numbers over the past five years in an illegal bid to boost their sales figures. The bank has been fined $185 million for the practices, including a record $100 million by the Consumer Financial Protection Bureau. Wells Fargo has fired at least 5,300 employees involved in the scam. (Pending resolution.)Merle, Renae, and Jonnelle Marte. “Wells Fargo Settlement over Phony Accounts Raises Questions about Oversight.” Washington Post. The Washington Post, 9 Sept. 2016. Web. 13 Sept. 2016.

Hill v. state street Corp.The SEC and DOL released that State Street Bank and Trust Company agreed to pay a total of at least $382.4 million to settle a lawsuit alleging fraudulent currency exchange charges. The settlement includes $155 million to the Depart-ment of Justice, $167.4 million in disgorgement and penalties to the SEC, and at least $60 million to ERISA plan clients.(Resolved.)Moore, Rebecca. “State Street Settles FX Charges.” Plan Sponsor. Asset International, 29 July 2016. Web. 13 Sept. 2016.

Knoll v. target Corp.A group of participants in Target Corp.’s 401(k) plan filed a stock drop suit against the firm for not removing Target stock from the plan. The suit alleges that misleading statements about Target’s expansion into Canada caused the com-pany’s stock to trade at artificially inflated prices. The plan invested more than $628 million in company stock and is seeking relief from damages. (Pending resolution.)

Moore, Rebecca. “Target Corporation Faces 401(k) Stock Drop Lawsuit.” Plan Sponsor. Asset International, 15 July 2016. Web. 13 Sept. 2016.

Pennsylvania Public school employees’ retirement system v. bank of america Corp. et al. Bank of America has agreed to pay $335 million in cash to settle a lawsuit brought by the Pennsylvania Public School Employees’ Retirement System over the bank’s mortgage-backed securities program. The lawsuit claims the misrepre-sentations in the program caused Bank of America stock to trade at artificially inflated prices. (Resolved.)

Moore, Rebecca. “Bank of America Settles Mortgage-Backed Securities Case with Public Fund.” Plan Sponsor. Asset International, 26 July 2016. Web. 13 Sept. 2016.

robert J. Patterson et. al. v. Morgan stanley et al. Morgan Stanley was sued by a former participant in the company’s 401(k) plan for excessive retirement-plan fees and self-dealing on the part of the company, which allegedly enriched itself at the expense of employees’ retirement sav-ings by offering proprietary investment funds. The plaintiff is seeking $150 million on behalf of a proposed class action lawsuit. (Pending resolution.)

Moore, Rebecca. “Morgan Stanley Facing Excessive-Fee, Self-Dealing Lawsuit.” Plan Sponsor. Asset International, 19 Aug. 2016. Web. 13 Sept. 2016.

White v. ChevronChevron wins dismissal of ERISA complaint, White vs. Chevron. Employees accused the energy company of failing to use its negotiating power to obtain lower investment and recordkeeping fees. The ruling from a district court judge concluded that the allegations were too broad and not tied to sufficiently real facts or evidence to warrant a full trial. (Resolved.)Manganaro, John. “Chevron Wins Dismissal of ERISA Challenge.” Plan Sponsor. Asset International, 31 Aug. 2016. Web. 13 Sept. 2016.

These cases have come from various sources, and we cannot confirm the validity of any such decisions.


the RolandRoundup.

Adecade has passed since the Pension Protection Act of 2006 was signed into law—and the SmartRetire-ment® suite of target date funds was launched from

J. P. Morgan Asset Management. Anne Lester, Head of Retire-ment Solutions and Portfolio Manager of the funds, shares some of what she’s learned about retirement investing and security over the past ten years.

Confero | 11

5 Keys to a smart retirement strategyBy: Anne Lester

Participants typically contribute just 5% of their paycheck at the start, reach 8% by age 50 and do not reach 10% before retirement.2

Only 21% of American workers are very confident in their ability to retire comfortably.1

“People do things with money because they have to. It’s not always what an investment professional would say is the most suitable behavior, but it’s reality.” ANNE LESTER

21%

1Employee Benefit Research Institute (EBRI); 2015 Retirement Confidence Survey.2J.P. Morgan retirement research, 2012-2014

Build flexible, diversified solutions

The Pension Protection Act (PPA) helped to strengthen defined contribution (DC) plans in many ways. In par-ticular, it paved the way for growing adoption of target date funds. These are professionally managed, welldiver-sified solutions whose asset allocation changes with an employee’s age. Wellexecuted, they can adapt to shifts in markets and participant behavior.

Manage for real-life participant behavior

J.P. Morgan’s SmartRetirement strategies draw on extensive research into plan participant behavior. One lesson we havelearned: Participants aren’t model savers. They save too little and too late, borrow too much and too often from their 401(k)s. And no wonder. Life circumstances change as people buy homes, confront unexpected medical expenses and struggle to balance the needs to save for a child’s college education as well as their own retirement. Instead of building solutions for model savers, we must build solutions that address the messy reali-ties of participant behavior.

Harness the power of human inertia

Plan sponsors can do a great deal to help their employees save and invest for retirement. Automatic enrollment allows plan sponsors to enroll employees in a DC plan unless they explicitly opt out. Automatic contribution es-calation automates annual increases in participant savings (also with an optout clause). Implemented together, this is a powerful combination that can help drive retirement savings. Presented with an opportunity to make a choice, people often do…nothing. Such is the force of human inertia. Automatic plan features allow inertia to work for—not againstplan participants.

take the investment decision off participants’ shoulders

Still, inappropriate asset allocation for plan participants remains a critical problem. Many participants are far from investment experts, and yet if they’re choosing investments from the plan menu themselves they are of-ten making decisions with important implications for their future in less time than it takes to eat lunch. Plan sponsors can help reset participant investments by using a strategy known as reenrollment. In this process all participant assets are defaulted into a qualified default investment alternative like a target date fund unless a participant makes a different choice. However, only about 7% of DC plans have taken this approach—though our 2016 plan participant research shows that over 80% of participants are supportive of reenrollment. Greater adoption could make a real difference.

Manage risk dynamically and holistically

Many different factors contribute to a successful retirement outcome. Participants can control some—how much they save vs. spend, for example. But other factors, such as market returns, are completely beyond their control. The range of factors, and the changing interplay among them, makes managing risk in a DC plan a complex task. A retirement strategy should not focus so much on one risk—protecting against market declines, for example—that it gives short shrift to another—delivering sufficient growth to ensure savings last as long as they are needed. Target date strategies that manage risk dynamically and holistically can deliver steadier perfor-mance in a broader range of market conditions and help more participants reach a secure retirement.

Anne Lester is a portfolio manager and Head of Retirement Solutions for J.P. Morgan Asset Management’s Global Investment Management Solutions.

The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products.

TARGET-DATE FUNDS: The JPMorgan SmartRetirement Funds are target date funds with the target date being the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each Fund will change on an annual basis with the asset allocation becoming more conservative as the Fund nears the target retirement date. The principal value of the Fund(s) is not guaranteed at any time, including at the target date.

There may be additional fees or expenses associated with investing in a Fund of Funds strategy. Asset allocation/diversification does not guarantee invest-ment returns and does not eliminate the risk of loss. J.P Morgan Funds are distributed by JPMorgan Distribution Services, Inc.


anne lester, J.P. Morgan asset Management 5 Keys to a smart retirement strategy

“We need to build solutions that address the messy reali-ties of participant behavior.”

-Anne Lester

The Pension Protection Act (PPA) of 2006 is one of the most significant legislative developments in the modern age of retirement policy. It enabled automatic-enrollment features, raised contribution limits, and provided a safe harbor for default investment selections whose combined effect has dramatically increased plan-participa-tion rates and put millions of American workers on a path to better retirement outcomes.

A recent survey by Callan Associates1 found that 67% of plan sponsors felt that the PPA was beneficial to their defined-contribution (DC) plans. Plan sponsors cited several ways in which the act has impacted work-ers’ retirement goals, including the safe harbor for Qualified Default Investment Alternatives (QDIAs), making permanent provisions of the Economic Growth Tax Relief Reconciliation Act of 2001 (e.g. higher contribution limits and Roth contributions), and providing safe harbors for offering auto-enrollment.

Since the PPA’s enactment in 2006, T. Rowe Price has observed dramatic growth in the implementation of auto-features among the retirement plans that it administers in these major areas:

• Auto-enrollment: Of retirement plans that outsource deferrals to T. Rowe Price, more than half have em-braced auto-enrollment. In 2005, only 17.5% of our plans used auto-enrollment. That has grown to 60.7%, as of year-end 2015.2

• Default investments (QDIA): Auto-enrollment into target-date vehicles as the default investment have in-creased from 56% to 96%.3

• Auto-increase: Plans using auto-increase have grown from 11.6% to 82.2%.4

• Roth contributions: Now offered in 50% of plans, up 7 percentage points from 2014. As a result, participants making Roth contributions have increased for the eighth consecutive year.5

While there has been significant growth in these areas, there are still many opportunities ahead to improve re-tirement outcomes.

The evolving landscape since the PPA has led to shifts in both plan sponsor and participant behavior.

Plan sponsors introducing Higher deferral rates

While the PPA allowed plan sponsors’ auto-enrollment, and the industry standard seemed to gravitate toward plan sponsors implementing a 3% default deferral rate, plan sponsors are changing the industry standard by increasing auto-enrollment from the typical 3%, resulting in a better chance for positive retirement outcomes.

There has been a 28% increase since 2014 of plan sponsors enrolling at a 6% deferral rate or more (23.6% to 30.2%) in plans where T. Rowe Price is the recordkeeper. While 3% remains the most utilized deferral rate, the shift to 6% indicates that sponsors realize that a 3% deferral is not going to be enough for their participants to save enough for retirement.6

This trend can yield positive results. According to the T. Rowe Price Retirement Saving and Spending Study, both Millennials and Gen Xers contribute on average 8% of their pay to a 401(k) plan. For those that were au-tomatically enrolled, about 50% of both generations also agreed (completely or somewhat) they wish they had been enrolled at a higher contribution rate.7

Participants Get stuck at default rate

Employers still face challenges with participant inertia on several levels. First, participation rates continue to be strongly tied to the adoption of auto-enrollment. Plans with an auto-enrollment feature have a participation rate of 88%. Plans that don’t offer auto-enrollment only have a participation rate of just 48%.8

Only 38% of participants increased their deferral rate in 2015. Assuming most of these participants were en-rolled at 3% — the example deferral rate used in U.S. Treasury Department guidance and the PPA safe harbor — plan sponsors should be concerned about retirement readiness for their employees, as well as workforce planning issues.9


10 Years after the PPa — Retirement Revolution, Ready for Evolutionaimee deCamillo, T. Rowe Price Retirement Plan Services

10 Years after the PPaRetirement Revolution, Ready for EvolutionBy: Aimee DeCamillo

1Callan, DC Spot Survey, June 2016.2T. Rowe Price Retirement Plan Services, based on active 401(k) plans that outsource deferrals to T. Rowe Price only, 12/31/2005.3Ibid.4Ibid5T. Rowe Price Reference Point, 2016. 6Ibid.7T. Rowe Price Retirement Saving and Spending Study, 20158T. Rowe Price Reference Point 20169Ibid.10Ibid.11Ibid.12T. Rowe Price Retirement Saving and Spending Study, 201513Smart Dollar, 2015

Auto-increase will automatically raise deferral rates annually towards the suggested 15% savings rate (including employer match). Results show that most of the participants will not opt out of auto-increase features. In fact, plans that offer auto-increase on an opt-out basis have a six times higher adoption rate compared to plans that use opt-in features.10

Since plan participants have demonstrated a great degree of inertia in being receptive to default options, there is an opportunity for employers to slowly nudge participants towards a higher savings rate, as high as 15%, over time.

But on a more discouraging note, nearly one-third (31% of participants) are not contributing anything to their retirement plan, putting their retirement in jeopardy.11

Financial wellness programs could be a way to address financial well-being for participants so their everyday expenses are not a barrier to saving for retirement. Half of plan participants said they were absolutely certain or very likely to increase their 401(k) contributions if they had less debt, and 31% said they would save more for retirement if they had an emergency fund in place.12

While some financial wellness programs focus on short-term money issues like budgeting and debt, there can be some long-term benefits around retirement savings. According to SmartDollar, 39% of participants in their financial wellness programs are saving 15% of their salary for retirement after 2 years.13

Those statistics show that participants who view their finances on a holistic level are more equipped to make decisions that can lead to better outcomes. Our industry has an opportunity to build on this and encourage be-haviors that can eventually improve the overall retirement readiness of plan participants.

Aimee DeCamillo is a vice president and head of T. Rowe Price Retirement Plan Services.She can be reached at [email protected].

16 | Fall 2016

aimee deCamillo, T. Rowe Price Retirement Plan Services

There are many stressors on the employer-provided system of retirement benefits. As a result of funding and cost challenges, we have seen the demise of the employer-provided pension plan and the rise of participant-directed savings plans. This development has been controversial, as exemplified by the debates regarding retire-ment savings rates, investment education and fee transparency, and the U.S. Department of Labor’s (“DOL’s”) fiduciary rule regarding investment advice. Many attribute the “retirement crisis” to the loss of these employer-provided pension plans, which secured a monthly income stream for employees in their retirement without requiring employee account management. As more workers must invest for themselves and turn also to indi-vidual retirement accounts, the law has now placed heightened responsibility and scrutiny on financial institu-tions and advisors to demonstrate that they provide retirement investors with unconflicted investment advice that is in the investors’ best interests, calling into question this approach to retirement savings as well.

Further complicating matters is the design of the workplace itself. Many workers are mobile, they may change employers or careers multiple times over the course of their working lives, and many have alternative work ar-rangements. These developments have created wider gaps among those offered, and eligible to participate in, retirement savings programs through an employer.

An unfortunate consequence of these competing pressures is that many employers may consider discontinuing retirement savings plans or not establish them in the first place. Government initiatives appear to have antici-pated this progression, as evidenced by the following:

•President Obama’s call for portable benefits programs. In his fiscal year 2017 budget, President Obama called for the development of programs to provide grants to states and nonprofits to design ways to provide retirement and other employee benefits that can be portable and accommodate con-tributions from multiple employers. He also called for legislation regarding open multiple employer plans (“MEPs”) among unaffiliated employers to allow for pooled plans and continued contributions when employees move between employers participating in the same MEP. These initiatives would build upon earlier proposals for automatic payroll individual retirement accounts (“IRAs”).

•Automatic payroll IRA programs and other alternatives. For employers that do not sponsor any retirement savings plans, there is increased momentum for automatic payroll IRAs. To date, at least five states (California, Connecticut, Illinois, Maryland, and Oregon) have enacted legislation that will require certain employers that do not sponsor a retirement plan to enroll employees automatically in a state-run IRA program. New Jersey and Washington have approved retirement marketplaces for eligible employers to shop for retirement savings programs. Many more states are considering state-run IRAs and MEPs. These initiatives follow guidance from the DOL and complement the U.S. De-partment of the Treasury’s guidance regarding myRA accounts, as well as President Obama’s agenda.

In late August, the DOL issued final rules (subject to Congressional review) clarifying that state-run payroll deduction IRAs for private-sector workers without access to workplace retirement savings programs would not give rise to an ERISA-covered pension plan if certain requirements are met. Pro-posals have also been made to allow certain agencies and cities to run such programs where states do not act. Critics have noted that state-run, public employee pensions (as well as Social Security) have not existed without mismanagement and the proliferation of these programs will not be without risk to retirement investors, employers or tax payers.

Other legislative proposals include mandates for contributions to plans run by third parties or the federal government. The Senate and House have introduced similar bills this year calling for univer-sal, individual retirement savings programs (e.g., S. 2472 and H.R. 5450: American Savings Account Act of 2016). These legislative proposals seek to amend ERISA to establish a new retirement fund for all employees (with an exception for collectively bargained employees) and self-employed indi-viduals which operates in a manner similar to the Thrift Savings Fund, which is available to federal employees, and would be managed by a Board (appointed by the President) who would select a list of investment funds and options, among which participants may choose. Monthly contributions would commence at 3% of compensation. These bills appear to exempt employers from contributing to the American Savings Accounts if they are subject to a state mandated program, thus contemplating a new landscape of state-run and federally-run savings programs and the bureaucracy that implies.


The System of Employer-Provided Retirement Benefits is at a CrossroadsMichelle Capezza, Esq., Epstein Becker green

the system of employer-Provided Retirement Benefits is at a CrossroadsBy: Michelle Capezza

Although there are not yet definitive solutions to solving the retirement crisis, it is clear that many different ap-proaches are being explored in order to fill in the savings gaps. Notably, the trends affecting retirement as well as health plan programs have a common theme of mandated participation in either a state-run or federally-run program, in the absence of a qualified employer program and noncompliance penalties.

In order for employers to retain control over the very tools that enable them to compete in the race for talent, it is important for employers to consider their own philosophy concerning employee benefits and the types of programs that they desire to offer their workers across their workforce. It is also necessary to assess compliance efforts with any programs that may be mandated by changing laws. In this evolving landscape, an employer should:

•examine its organization’sworkforce and determinewhich benefits programs it desires to offerworkers in a competitive marketplace;

•identifyanygapsinbenefitsofferingsandconsiderhowtofillthosegaps;

•assesshowcostsassociatedwithofferingemployeebenefitscompriseworkers’overallcompensa-tion and can be built into a competitive model which may include employer matching or other con-tributions to employee savings accounts;

•monitorlegislationaffectingemployeebenefitsandapplicablecompliancerequirements;

•determinewhether itsorganization is subject to laws thatwill require it tocomplywithcertaingovernment-mandated programs and decide whether it is instead desirable to establish, or expand coverage under, an employer-sponsored plan;

•evaluateplandesignoptions thatcanprovideportability featuresunderanemployer-sponsoredplan;

•retain advisors and service providers that can assistwith plan administration, investments andcompliance;

•advocateforsolutionsthatwillmakeitlessburdensomeforemployerstoprovideemployeeswithretirement savings programs; and

•voiceanyconcernsaboutthetrendsinthelawsaffectingemployeebenefitsinordertopreservetheadvantages associated with employer-sponsored programs that serve to benefit employees and dif-ferentiate employers in the talent wars.

Michelle Capezza is an employee benefits and executive compensation attorney and a Member of EpsteinBeckerGreen, resident in their New York office. She can be reached at [email protected] and 212-351-4774.

20 | Fall 2016

Michelle Capezza, Esq., Epstein Becker green

When it comes to financial literacy in U.S. high schools, the results are missing the benchmark.

A recent report by Champlain College’s Center for Financial Literacy graded all 50 states and the District of Columbia on their ability to gener-ate financially literate high school graduates. Only five states received an A, while 26 received a C or lower.

The 2015 National Report Card looked at state requirements as a whole, rather than individual school districts, which is why some states that re-ceived a C, D, or F may have schools that offer (or require) personal fi-nance training. Utah was the only state to receive an A+.

“We have reviewed each state’s graduation requirements, educational stan-dards and assessment policies,” the Center reported. “We have reviewed state legislation and rulemaking on personal finance education…and we reached out to state education policy experts for clarification of financial literacy policies and practices during our research.”

Too many students leave high school without ever receiving proper finan-cial education—and those uneducated students may grow into financially uneducated adults.

The 2015 Consumer Financial Literacy Survey found:

•41%ofadultsgavethemselvesaC,D,orFwhengradingtheir personal finance knowledge.

•29%havenotsavedanythingforretirement.

•34%havenosavings.

•60%don’thaveabudget.

•24%don’tpaytheirbillsontime.

“Such negative financial outcomes and low levels of consumer knowledge and confidence make it crystal clear that financial literacy in America should be a national priority,” the Center found.

Robert Goldman is a Regional Vice President - Institutional Markets, in the New York Regional Office at Transamerica Retirement Solutions.

He can be reached at [email protected].


robert Goldman, Transamerica Retirement Solutions Financial literacy:Does Your State Make the grade?By: Robert Goldman

At any given moment in time, only about half of private-sector workers are covered by any sort of employer-sponsored retirement savings plan. This would not be a problem if workers saved outside of these plans, but most do not. Not surprisingly, the lack of coverage is particularly prevalent among those at the lower end of the income distribution, so many low earners end up dependent solely on Social Security for their retire-ment income. Even those with a 401(k) plan often end up heavily reliant on Social Security because they lack continuous coverage, cycling in and out of employers who offer a plan. These facts have made policymakers eager to expand retirement plan coverage to more workers.

in 2009 to cover the uncovered, and others have come up with alternative proposals. But no progress has been made at passing federal legislation. Into this breach have stepped the states.

The first state to move forward was California. In 2012, the state enacted the California Secure Choice Retirement Savings Program system. Most impor-tantly, the vehicle chosen by California was an IRA, which was designed to avoid requiring employer contributions and subjecting employers or other fi-duciaries to the Employee Retirement Income Secu-rity Act (ERISA). The goal of this choice was to keep employer burdens minimal. California also decided to move from voluntary participation to a mandate on employers without a plan to automatically enroll their employees in Secure Choice. Automatic enroll-ment in the plan will boost participation significantly while still giving employees the chance to opt out if they desire. At this point, California has completed a market and feasibility study, but needs final legisla-tion to get its auto-IRA program under way.

Four other states – Connecticut, Illinois, Oregon, and Maryland – have also passed legislation follow-ing the Auto-IRA model. Connecticut has complet-ed its feasibility study but has yet to get the program up and running. Illinois has not yet completed a fea-sibility study. Oregon started a little later than these other states but has completed its feasibility study and is planning on having its program up and run-ning by 2017. Oregon’s plan, like the other states, is to keep the money separate from any public pen-sion funds, with assets being managed by a private-sector provider but overseen by the state. Maryland is the most recent state to take this approach and is still relatively early in its process. But it is taking a unique approach to ensuring employer participation by offering a waiver of its $300 annual filing fee for businesses either offering another retirement plan or participating in the state’s program.

Two states – Washington and New Jersey – have fol-lowed a different path. These states have adopted

Since most of those without coverage work for small employers, policymakers for decades have tried to solve the coverage problem by introducing simpli-fied retirement plans. But despite these efforts, cov-erage rates have remained around 50 percent in the private sector because plan administration costs are only one of several reasons that small businesses do not offer plans. Equally important considerations include too few employees, lack of employee interest, and unstable business income. Recognizing the dif-ficulty in getting small businesses to adopt plans, the Obama Administration proposed “Automatic IRAs”


state initiatives to Cover uncovered Private-sector WorkersGeoffrey t. sanzenbacher, Center for Retirement Research at Boston College

state initiatives to Cover uncovered Private-sector WorkersBy: Geoffrey T. Sanzenbacher

Source: Updated from Munnell, Belbase, and Sanzenbacher (2016).

No activityFailed legislative initiativeActive legislative initiativeAuto-IRA enactedMarketplace enacted

a marketplace approach, which does not involve an employer mandate to automatically enroll uncovered workers, but rather is designed to educate small employers on plan availability and promote participation in low-cost, low-burden retirement savings plans. Participation is voluntary. Depending on the specific plan chosen, employers participating in the marketplace could be covered under ERISA, although it is likely some non-ERISA plans would be offered.

Other states, such as Massachusetts, are toying with the idea of having both an auto-IRA system and a state-run system of multiple employer plans (MEPs). MEPs would allow unrelated employers to offer 401(k) plans but offload a portion of the administrative burdens and fiduciary responsibilities to a third party. While em-ployers could not be required to adopt a MEP, the existence of an employer mandate might encourage small employers to opt for a MEP rather than an IRA.

The map below shows where plan activity has taken place. Red and orange identify those states with plans under way; the stripes indicate states with active legislation; light grey indicates those states with failed leg-islation. It should be noted that many of the states with active programs today had many failed pieces of legislation before an actual program was enacted. The message from the map is that state activity to cover uncovered workers is widespread.

State Retirement Security Activity, as of June 2016

And although the federal government has not taken action to implement auto-IRA itself, in July 2015, Presi-dent Obama instructed the Department of Labor (DOL) to provide clarifying guidance so that states could develop these plans without running afoul of ERISA. In August 2016, the DOL finalized the guidance, which exempted state auto-IRA programs from ERISA. Additionally, in November 2015, the DOL issued guid-ance that sought to clarify the treatment of marketplaces and the use of a state-run MEP that other states are considering. This guidance should provide new momentum for the adoption and implementation of state savings initiatives.

Of course, this approach to implementing a retirement program is clearly a second-best alternative. A na-tional plan would be a much more efficient way to close the coverage gap, offering substantial economies of scale and avoiding the laborious, time-consuming, and expensive process of setting up 50 different state plans. But although this country clearly needs federal legislation, the state plans are a promising step towards giving more workers access to employer-based retirement plans.

Reference

Munnell, Alicia H., Anek Belbase, and Geoffrey T. Sanzenbacher. 2016. “State Initiatives to Cover Uncovered Private-Sector Work-ers.” Issue in Brief 16-4. Chestnut Hill, MA: Center for Retirement Research at Boston College.

This article was adapted from Mun-nell, Belbase, and Sanzenbacher (2016). Geoffrey T. Sanzenbacher is a research

economist at the Center for Retirement Re-search at Boston College. Geoffrey can be reached at [email protected]

and 617-552-6783.


Geoffrey t. sanzenbacher, Center for Retirement Research at Boston College state initiatives to Cover uncovered Private-sector Workers

The phenomenon of choice overload—that individuals find too many choices perplexing and demotivating—is one of the most popular ideas in behavior-

al economics. Choice overload came to the fore-front with Sheena Iyengar’s well-known study of chocolates and jams in a grocery store—too many options made shoppers disinclined to like or buy. The concept has also made its way into 401(k) investment lineups. Professor Iyengar and coau-thors found that too many fund choices reduced plan participation and encouraged participants to gravitate toward familiar options like money market funds. (The 401(k) research, coincidental-ly, was made possible by a collaboration between Vanguard and Iyengar.)

Choice overload offered a strong critique of a cen-tral organizing principle of 401(k) plans—that an extensive list of investment options is the best way

to maximize welfare for workers, and the larger the list, the better. Other research (including our own) showed that while some participants made reasonably effective use of extensive choice sets, a large group made erratic portfolio decisions—in-vesting either at extreme asset allocations or with high levels of concentration or idiosyncratic risk. Sponsors designed complex menus under the hy-pothesis that participants had strong preferences for, say, investment contracts over stock index funds, mid-cap value managers over long bonds, and so on. In reality, most did not.

It’s still common today to talk about DC menu options in terms of choice overload. Yet, we’d ar-gue that the time has come to retire the concept, given the growth of automatic enrollment and target-date funds in DC plans. As of year-end 2015, 78% of new entrants into Vanguard record-kept plans were in professionally managed alloca-

tions—either a single target-date fund (76%) or traditional balanced funds and managed accounts (2%). Among all participants, half (48%) were in a professionally managed allocation, either a single target-date fund (42%) or balanced and managed account options (6%).

If this trend continues, we anticipate that over two-thirds of all Vanguard participants will be in a professionally managed strategy, mostly a single target-date fund, by 2020. For these participants, there is no problem of choice overload. The pro-cess of choosing has been delegated to the target-date money manager or other advisor running an all-in-one portfolio.

What is underlying this change? The obvious ex-planation is the strong default effect of automatic enrollment. Automatic enrollment is increasingly common, and the most prevalent choice of a de-fault fund for automatically enrolled participants is a target-date option. Because of inertia, partici-pants stick with that option.

The other explanation, which has received less at-tention, is a streamlined choice effect. Many plans still offer voluntary enrollment, whereby partici-pants must choose both a contribution rate and investment option. In these plans, the presence of target-date funds, particularly in the first tier of a menu, has radically streamlined the decision-making process for participants. Participants in these cases gravitate toward a single target-date option because it reframes investment choice from a complicated portfolio construction process to a single question: In what year do I expect to retire?

It’s a sign of the shifting choice architecture of U.S. DC plans. A default and a streamlined choice ef-fect have trumped the problem of too much choice.

In this environment, as we argue in our paper on DC plan design , the fundamental design principle underlying DC investment menus has changed.

Given that many investors are no longer mak-ing active choices (either because of a default or streamlined choice effect), the menu becomes a decision aid, a way to frame choices, for the moti-vated investor. This is the small group of partici-pants who have strong investment beliefs and who want to deviate from a professionally managed, all-in-one portfolio option.

To us, the end of choice overload in DC plans sig-nals a new era. It marks the emergence of a more desirable model of decision-making than the “more choice is better” model of the traditional 401(k) —one in which more participants end up in professionally designed portfolios while allow-ing a smaller group with strong convictions to cre-ate their own way.

Steve Utkus is a principal and director of Vanguard Center for Retirement Research.

¹ Frank Chism, Kelly N. McShane, and Stephen P. Utkus, 2016. Constructing a defined contribution investment line-up: Four best practices. Valley Forge, PA: The Vanguard Group.

Note: Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target-date) when an in-vestor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target-date. An investment in target date funds is not guaranteed at any time, including on or after the target-date.

©The Vanguard Group, Inc., used with permission


the end of “Choice overload”steve utkus, MBa, Vanguard group

the end of “Choice overload”By: Steve Utkus

“Be your own boss, and set your own hours.” This slogan is one of Uber’s recruiting pitches to attract new drivers to join its network. Many readers are surely familiar with the ongoing debate (and litigation) over whether Uber drivers are properly classified as independent contractors or employees, and Uber is not alone in trying to design the workforce of the future. Many employers use similar flexible work-schedule arrangements to attract and retain talent. These workers go by different names, depending on the industry and company, including gig workers, per diem, on-call, project-based, temporary, flex-time, part-time, variable hour, seasonal, and other types of workers that may work on-demand or in an otherwise nontradi-tional manner. Additionally, in some cases, an employer may hire these workers through third-party payroll providers, like staffing agencies and professional employer organizations, or through independent contractor arrange-ments. In other cases, employees may be hired on-payroll, but not offered full benefits. While these arrangements may be the wave of the future, employers should consider whether their employee benefit plans are impacted, includ-ing whether they are in compliance with all employee

benefits laws, and whether plan documents need to be amended. In short, the workforce of the future can lead to new employee benefits risks, unless an employer identifies and avoids the traps that exist in this area.

As a general matter, before hiring nontraditional workers, employers must determine how these workers are treated by the employer’s existing employee benefits plans’ terms and consider whether any amendments are appropriate. For example, if a new category of employee is created by an employer, the employer’s plans may need to be amended to either cover or exclude the new employment classification. Without a careful review of the plan documents from time to time, an employer may be creating benefit plan risk that will be expensive to fix in the future. In this regard, all em-ployee benefit plan documents should accurately describe who is covered and which employment classifications are excluded. Qualified retirement plans may be subject to other concerns, including that coverage testing could be impacted if too many employees are put into an excludible class, making the covered group discriminatory. Moreover, in what may be the most significant exposure to an em-

ployer, Affordable Care Act (ACA) taxes can be triggered if employees are determined to be full-time under the law and appropriate coverage is not offered.

Qualified retirement plans are also subject to special requirements that dictate how long an employee can be excluded from the plan, where the exclusion is service re-lated. These concerns generally exist for employees classi-fied as part-time or in a similar service-based classification. In that case, the workers may need to be offered participa-tion in the plan once the employee completes one year of service. Applicable law generally defines one year of ser-vice as either (i) completing 1,000 hours of service within a 12-month period (hours of service method); or (ii) being employed by the employer for a 12-month period (elapsed time method). Each of these methods has pros and cons when dealing with nontraditional workers so an employer needs to understand which method its plan has adopted and whether a change may be a good idea.

From a medical plan perspective, the ACA requires em-ployers with more than 50 full-time equivalent employees to provide affordable health care coverage or pay a tax. An employer with nontraditional workers who are not counted properly can lead to ACA noncompliance and outsized ACA “pay or play” penalties. These penalties can

quickly skyrocket when workers who are really employees under the law are misclassified as independent contractors. This is particularly the case beginning in 2016, when the ACA requires employers to offer coverage to 95% of their full-time employees. The applicable regulations generally define a full-time employee as someone who works 130 hours in a month. In order to correctly classify employees as full-time, a game plan must be formulated to determine how hours will be tracked properly. This data may be cru-cial for certain “look-back” testing that needs to be con-ducted. Additional issues include how to handle rehired employees and forming an appropriate waiting period. The issues are particularly exacerbated in the case of nontradi-tional employees, whose hours may fluctuate from week to week, or project to project, and for whom collecting hours worked can sometimes be challenging.

In summary, the economy of the future is here, and it in-cludes a growing number of employers that are embracing a nontraditional workforce. At the same time, employee benefits laws need to be adhered to, and, in many cases, those laws don’t fit perfectly with this new normal, per-haps because some of those requirements were designed for an earlier time. At the very least, employers need to be mindful of the impact these new types of employees will have on their employee benefits plans. Additionally, from a societal perspective, the workforce of the future may result in more employees working for cash only, with no access to benefits. This may create a workforce that may be even less prepared for retirement than the workers of today. As employers continue to innovate in this area, policymakers would be well advised to consider the effect that nontradi-tional workers may have on the current employee benefits system. For now, from a practical perspective, employers are well advised to keep their benefits counsel in the loop as they make changes to the character of their workforce, and employers should review their plan documents with counsel to determine the best way to proceed.

The author wishes to thank William Szanzer, an associate at Davis & Gilbert, who assisted with the preparation of this article.

Alan Hahn is a partner in and co-chairs the Benefits & Compensation Practice Group of Davis & Gilbert LLP.

Alan can be reached at [email protected] or 212.468.4832.


Workforce of the Future: is Your Plan ready?alan Hahn, Esq., Davis & gilbert, LLP

Workforce of the Future: is Your Plan Ready?By: Alan Hahn

retirement readiness todayWhen considering retirement readiness, there are a great number of articles, arguments and entreaties for personal responsibil-ity and individual engagement. Fidelity’s TV ads feature a green line that represents a financial GPS towards a healthy retire-ment. Voya TV ads ask, “What’s your number?”, while showing individuals holding computer-graphic numbers that represent how much they’ll need in retirement.

Despite the seemingly constant reminders, the research is consistent and overwhelming: Americans are not sufficiently pre-pared for retirement. Recent evidence highlighting this fact includes a study from the Employee Benefit Research Institute that shows the majority of us have less than $25,000 saved for retirement. Depending on the survey, somewhere between 25% and 36% of U.S. employees have saved nothing – zero – for retirement, and a substantial number of retirees expect to count exclusively on Social Security.

It is a well-known problem, with both individuals and government efforts (including the recent MyRA program) thing to rem-edy it. But can employers do more to address it?

Why should businesses care about retirement readiness?While the impact of insufficient retirement savings for an individual is obvious, it is important to realize that their employer will suffer as well. We’ve considered the legal responsibilities of promoting retirement readiness before (in our April 2013 edi-tion of Confero), but we shouldn’t forget there are financial and pragmatic reasons to encourage healthy employee retirement.

First, a study from Human Resources Executive Online suggests that employees undergoing financial stress tend to be more distracted and less productive, so promoting employee financial well-being is directly helpful to the employer. Second, there is solid demographic evidence that Baby Boomers are delaying retirement as a result of the 2008 financial crisis. Employees who aren’t ready for retirement will stay in their positions longer, possibly to a point where their productivity begins to decline. A rotating workforce encourages a healthy balance of experienced veterans and new hires, with the potential to create loyal, long-standing relationships with the company. Finally, older, tenured employees tend to be highly compensated, relatively immune from performance criticisms, and less likely to adapt to changing requirements. In a world of pure economic theory, employee salaries should be perfectly correlated with their productivity. In reality, the longer an employee stays at a job, the more they tend to earn. In most cases, salaries don’t fall even if employee productivity drops.

While the responsibility for retirement readiness is primarily laid at the feet of individual employees, their employers will bear some of the consequences. Therefore, we must recommend a more aggressive stance on the part of employers – a full-court press – to promote retirement readiness. so what can businesses do to improve retirement readiness?Retirement is still ultimately the responsibility of individuals, but there are a number of systematic incentives and plan struc-tures that employers can put in place to promote retirement readiness. At Westminster Consulting, we’ve suggested several possibilities in our articles, blog posts, and through Confero. As a reminder, here are some ideas to consider.

•Rebootyourretirementplan:Simplifyingyourinvestmentlineup,harmonizingreportingfrommultipleplans(e.g.–yourDB pension plan, DC plan, and other benefit plans), and improving your service agreements for participants can all have a positive effect. Making sure your service level agreements are competitive is a requirement and, generally, a good idea.

•ConvertyourDCplanintoaDBincome-replacementstructure.SeeourSeptember2012articleonthistopicorourApril2013 edition of Confero for more details.

•AdjustingyourDCplanstructure,usingQDIAs,automaticfeatureslikeauto-deferralandauto-escalate,measuringtheimpact of company matching towards participation rates. For more information, the July 2014 edition of Confero is all about automatic features for improving plan performance.

•Formalizeandmonitoryourparticipanteducationpolicy.TheJanuary2014andSeptember2015editionsofConfero had several articles about improving the participant experience, particularly in regards to education.

•Makeparticipationratesakeymetricforretainingyourserviceproviders.

Not all of these actions will apply to your company’s unique circumstances, but your consultant can suggest the actions with greatest chance of success.

Gabriel Potter is a Senior Investment Research Associate at Westminster Consulting. He can be reached at [email protected] and 585-246-3750.


improving retirement readinessGabriel Potter, aiFa®, MBa, Westminster Consulting, LLC

improving retirement readinessBy: Gabriel Potter

Fewer recordkeeping options will provide plan sponsors with more services and technology, but it may come at a higher cost in the long run.

a 401(k) History lesson

The recordkeeping industry has evolved since the early 1980s. When Ted Benna, the father of the 401(k), received IRS approval for the first salary deferral plan under section 401(k) in 1982, there was no master plan for the indus-try. Consulting firms drove the popularity of 401(k) plans as supplemental plans to their existing pension plans to provide employees with additional retirement savings options and executives with a legal tax dodge. Recordkeep-ing essentially required only quarterly paper statements, and there was no participant-directed investing.

The next step in the evolution of 401(k) plans was driven by the mutual fund industry in the early 1990s. Recog-nizing a massive opportunity to capture assets, the mutual fund industry convinced Americans that they should control the investments of their retirement accounts. Once individual participants were making the investment decisions, the demand for more frequent information and access naturally developed into daily recordkeeping and 24/7 access.

The most dominant recordkeepers in that era were the mutual fund companies and insurance companies whose primary interests were to sell their investment products. So the American retirement landscape was more of a vehicle to corporate profits than a well-considered program to provide retirement-ready participants.

In the early 2000s, the emergence of independent retirement consultants and investment advisors to the 401(k) market began to change the industry slowly by promoting more fee awareness and began to wrestle control of the investments away from the investment providers’ proprietary products. The goal was fee transparency and investment “open architecture.” Open architecture is the ability to use investments provided by more than a single fund family or insurance company. Originally, only the largest companies could afford such luxuries, but over time, open architecture became the norm.

Most participants still did not understand the costs associated with either their 401(k) plans or the mutual funds that they bought within them. When 401(k) plans came under pressure due to excessive fees and subpar performance, our government stepped in to correct the problem with more regulation and disclosure require-ments geared toward educating participants in these areas. All of this brings us to where the retirement industry is today: a hodgepodge of evolutionary mutations for good and bad, pieced together by industry demand and governmental reactionary oversight. As such, it should come as no surprise that recordkeeping firms would continually enter and exit the business. When there appears to be an opportunity to generate profits, various en-tities decide to take advantage and find a way to offer recordkeeping services. Once regulation or client demand stretches those profit margins too thin, they outsource, sell, merge or simply exit the business to concentrate resources on other priorities.

recordkeeper Consolidation

Over the past three years, the rate of consolidation in the recordkeeping business has been very aggressive. The most notable acquisitions are: •Empower–rebrandingofGreatWestaftertheacquisitionofJPMorganandPutnamrecordkeepingservices •Transamerica–acquiredDiversifiedInvestmentAdvisorsandMercerrecordkeepingservices •JohnHancock–boughtNewYorkLifeRetirementPlanServices •MassMutual–acquiredTheHartford’sretirementplanbusinessAnd these are just the most newsworthy of the flurry of acquisitions. Other buyers include One America (ac-quired BMO) and CUNA Mutual (bought CPI), as well as many other smaller deals. All of this activity has resulted in fewer providers controlling a much larger portion of the overall market. It is estimated that 85 to 90 percent of all plans, participants and assets in defined-contribution plans are concentrated with the top 20 providers.

There are many reasons to buy or merge with another recordkeeper; most successor firms are looking for market share or access to market segments where they are not strong. Acquiring a competitor’s superior technology or systems is also a common goal. Regardless of the reason, many plans now use a different recordkeeper than the one they chose five years ago through no choice of their own.

Jim Bartoszewicz is the Chief Compliance Officer of Fiducia Group and Principal of the firm.He can be reached at [email protected] and 412-540-2302.


401(k) evolution and the recent Consolidation of recordkeepersJim bartoszewicz, aiFa®, C(k)P®, JD, QPFC, Fiducia group, LLC

Contributor Mentions

401(k) evolution and the recent Consolidation of recordkeepersBy: Jim Bartoszewicz

The u.s. retirement system is much like a bridge. Without a strong framework the whole thing can collapse.

Center for Retirement Research at Boston College Davis & Gilbert, LLP

Epstein Becker GreenFiducia Group, LLC

J.P. Morgan Asset ManagementTransamerica Retirement Solutions

T. Rowe Price Retirement Plan ServicesVanguard Group

Westminster Consulting, LLC

thAnk you contributors

CONFEROF I D U C I A R Y P A R T N E R S

Meet Tom Zamiara. He is a founding partner

of Westminster Consulting. Tom serves a wide variety of clients, from corporate to nonprofit and foundations.

Tom is an avid sports enthusiast and fan. You can always find him at his sons’ sports events. As well as attending high school sports, Tom is a longtime fan of the University of Notre Dame. Tom has been associated with St. Peter’s Soup Kitchen in Rochester, NY, for decades and has been a board member for 15 years. In addition, he also currently serves as a member of the Brothers of Holy Cross Investment Advisory Committee.

Prior to establishing Westminster Consulting, Tom spent almost a decade at Prudential Securities, Inc., where he helped develop the Private Client Group and Qualified Plan Consulting Group practices. Tom began his career in the financial services industry, managing the fixed income desk of the Regional Institutional Sales Group for the Lehman Brothers division of Shearson in Rochester, NY.

Tom received his bachelor’s degree from Boston College. He also attended The Wharton School at the University of Pennsylvania, where he earned his Certified Investment Management Analyst (CIMA®) certification, as well as the University of Pittsburgh’s Katz School of Business Accredited Investment Fiduciary Analyst (AIFA®) designation.

Tom resides in Rochester, NY, with his wife, Sally, and their four children.

Contact Thomas Zamiara at [email protected] or 585-246-3750.

At Westminster Consulting, we specialize in providing incomparable fiduciary advice and counsel, coupled with thoughtful investment research, to our clients. Our services

help qualified plan sponsors and their fiduciaries fulfill their responsibilities under ERISA.

Our focus is on promoting, developing and maintaining proper and strong fiduciary governance processes for clients is central to our culture and to the services we provide. Our role as “fiduciary” consultant to plan sponsors goes beyond that of a traditional investment consultant. Pivotal to the work we do with plan committees is assisting them with the development of and compliance with sound fiduciary practices, while delivering exceptional, original investment analysis.

Our prudent process-based approach enables defined benefit and defined contribution plan fiduciaries to meet their legal obligations, as well as mitigate their potential liability in a cost-effective and prudent manner, benefiting all stakeholders of a plan.

As a leading independent, fee-only fiduciary consultants, we provide plan sponsors with the ability to better navigate and manage the demanding and changing ERISA regulatory landscape. Our independence provides objectivity, allowing Westminster Consulting to provide clients with impartial advice, time-tested industry-leading insight and improved plan results.

Whether through the development of Investment Policy Statements, intensive fiduciary reviews, education and training, or ongoing oversight and document management, the policy-and-procedures approach utilized by Westminster Consulting provides clear and thoughtful solutions to the regulatory challenges of managing a qualified plan.

The complexity of the plan-oversight process is streamlined by utilizing Westminster Consulting’s proprietary Fiduciary Compliance Resource Center™ (FCRC) technology platform. This secure portal is the first of its kind to provide consistent and accurate plan information in an easily accessible and secure location. FCRC helps plan sponsors control and manage all aspects of plan oversight consistent with Department of Labor’s ERISA requirements. FCRC is one of the most comprehensive fiduciary management tools available to plan fiduciaries.

At Westminster Consulting, we provide informed insight and seasoned expertise to help investment fiduciaries better manage their legal responsibilities through considered advice, secure technology, and ongoing fiduciary education.


PaRtneR SPotlightt h o m a s Z a m i a r aMeet Westminster

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