How to Improve Plan Design in a Pandemic
Jean Duffy’s professionalism and experience translate to immediate value for clients, even for retirement plans that—at least on the surface—appear to be doing everything right.
Like many 401(k) advisors, Duffy, Senior Vice President and Financial Advisor with CAPTRUST, found herself with a new client at the beginning of a once-in-a-century pandemic.
The company had 200 employees and roughly $20 million in plan assets. It also had a 92% participation rate and a 6% deferral rate. By all accounts, it was a very engaged and employ fee-conscious investment committee, but Duffy felt there was room for improvement.
She got to work, beginning with fees.
“Due to internal benchmarking processes at CAPTRUST and the negotiations that took place, we cut their recordkeeping fees in half,” Duffy explained. “Our knowledge of the marketplace means we know how recordkeeping services should be priced.”
She followed the fee reduction with an investment analysis of available menu options. Duffy replaced certain proprietary funds, added a full-suite of passive funds, performed a complete target-date fund analysis, and switched to a collective investment trust (CIT) hybrid-TDF.
Employee Awareness
Yet, due to social distancing safety measures in place and lack of onsite visibility, most employees had no idea who CAPTRUST was. It meant they needed a comprehensive education campaign, and one was promptly planned.
CAPTRUST Education usually consists of a combination of group meetings and one-on-ones. The group meetings were held virtually, and the individual consultations were delayed in the hopes she could eventually schedule them onsite.
“I’ll send a one-on-one meeting invite to a client who knows us, and my schedule will fill up in 30 minutes,” Duffy said. “But we were in a place where they did not know us, so there was nothing to motivate them to sign up for the meeting. We concentrated on the group meetings instead.
“We thought, ‘How can we keep moving this plan along to one that’s best in class?’ We turned our focus to the committee, conducted fiduciary training, and ensured proper documentation was in place.”
Not knowing how long the pandemic would last, and not wanting more time to elapse, she eventually decided on virtual one-on-ones before turning to plan design.
She noticed a few things that were not typical in terms of plan design. For example, they had a five-year active member distribution option. If a participant was with the company for five years, they could take a distribution without any benefit event.
“I said I didn’t understand its purpose, which wasn’t fulfilling the goal of getting people to a successful retirement,” Duffy noted. “We got rid of it and added a discretionary contribution so they could do a ‘true up’ if they chose. I also recommended the company do a re-enrollment sweep at 6% percent with an auto increase, which they did not have.”
Duffy engaged the committee in an in-depth conversation on plan design trends. After further discussions, the committee decided to implement all the recommendations but wanted to wait to have additional discussions about auto increase in the future.
As one would expect, the average participation rate is now 99%, up from 92%, and the average deferral jumped from 6.4% to $7.5%. The $20 million in plan assets is now $32 million.
“We’ve been able to successfully move the dial in a very challenging year,” Duffy concluded, “and I’ve had to do it, almost entirely, in a virtual environment.”
And while she was open about raising fees on the advisor side, total plan fees are still less for the client overall, with a sharp increase in service and, importantly, results.
Jean Duffy, AIFA®, is Senior Vice President and Financial Advisor with CAPTRUST.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
