Assessing Suitability of Advisor Partnerships

Assessing Suitability of Advisor Partnerships

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By Mark Olsen, Managing Director at PlanPILOT

Choosing the right advisor is essential for employers who want to offer their employees a high-quality retirement plan. The right advisor can help plan sponsors navigate the complex world of retirement planning, keep them up to date with the changing landscape of legal and regulatory requirements, and verify that the plan meets the needs of the company and its employees. However, not all advisor partnerships are created equal, and plan sponsors need to assess the suitability of potential advisors before making a decision. Read on to learn more about what to look for in a qualified plan consultant and how you can make the best decision for your company.

Client Services

A clear and effective client services model is essential for building a successful partnership between the plan sponsor and advisor. Plan sponsors should ask potential advisors about their approach to client service, including their communication and reporting practices, and how they handle your questions and concerns. 

The advisor should have a well-defined client services model that aligns with your expectations and needs. This includes flexibility with virtual versus in-person meetings, proactive decision support when significant regulatory changes occur (e.g., SECURE 2.0), as well as the availability of online resources, such as educational materials and calculators. A commitment to client services is the foundation for a strong advisor partnership.

Conflict-Free Business Model

Another important factor to consider when assessing the suitability of advisor partnerships for retirement plan sponsors is the advisor’s business model. Plan sponsors should look for advisors who have a conflict-free business model, which means they don’t receive any compensation from third-party providers for recommending their investment products or services. This is important because it ensures that the advisor’s recommendations are based solely on the best interests of the plan sponsor and its participants, rather than any financial incentives. 

You’ll also want to assess whether the advisor is acting as a fiduciary and if so are they willing to put that in writing in the client agreement. A fiduciary is an advisor who is legally obligated to act in the best interests of the plan sponsor and its participants. Fiduciary advisors must avoid conflicts of interest, disclose all fees and compensation, and provide impartial advice. Be sure to ask potential advisors if they are fiduciaries and how they plan to fulfill their fiduciary responsibilities.

References and Reputation

Anyone can say they are a fiduciary with a robust client services model, but the proof is truly in the pudding when it comes to whether they can back up those statements with a strong reputation and positive client references. When assessing the suitability of advisor partnerships for retirement plan sponsors, it is crucial to consider the advisor’s years of experience, client feedback, responsiveness to client questions, communication skills, and the number of clients serviced.

Plan sponsors should also ask potential advisors for references and speak to current or former clients about their experiences working with the advisor. This can provide important firsthand knowledge about the advisor’s strengths, weaknesses, and overall suitability for the plan sponsor’s needs. Through speaking with references, you can gain a more complete picture of the advisor’s capabilities to be confident you’re making an informed decision.

How PlanPilot Can Help

At PlanPILOT, our well-developed client services model, commitment to conflict-free business, and stellar reputation have set us apart from other qualified plan consultants for over 20 years. We are dedicated to creating and maintaining the best plans for you and your employees. If you’re ready to take the next step with your employer-sponsored retirement plan, we would love to hear from you. Call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com to get started today.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

My Top Lessons for Retirement Plan sponsors

My Top Financial Lesson for Retirement Plan Sponsors

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By Mark Olsen, Managing Director at PlanPILOT

You could spend your whole life studying ERISA laws and the regulations around retirement plan sponsorship and still never know everything there is to learn. With so much information out there and the ever-changing legal landscape, it can be hard to tell which lessons are most important to remember. As an industry leader in the retirement plan advisory space, I’ve heard my fair share of advice aimed at motivating plan sponsors. But if I could only pass on one lasting lesson, it would be the importance of plan governance and implementing proper fiduciary protocols.

The Importance of Plan Governance

As a retirement plan sponsor, you have an enormous responsibility to ensure your participants have access to a well-structured and efficiently managed retirement plan, and a robust plan governance framework is a critical aspect of success. 

Plan governance refers to the set of policies and procedures that oversee the management and administration of a retirement plan. It is designed to ensure that the plan is being managed in the best interests of plan participants and beneficiaries. Having well-developed processes and procedures in place can provide plan sponsors with a number of benefits, including:

Compliance

​​A good plan governance framework can help keep the retirement plan compliant with all relevant laws and regulations. This is a major benefit for plan sponsors, since failure to comply with the Employee Retirement Income Security Act (ERISA) regulations, can cause penalties, fines, and even lawsuits from plan participants.

With organized processes and clearly defined protocols to guide fiduciary responsibilities, plan sponsors can greatly reduce the chances of a compliance misstep or lawsuit.

Risk Management

Further, well-defined plan governance helps to identify and mitigate risks. For instance, a plan sponsor may establish a committee responsible for monitoring the plan’s investment performance, reviewing service provider contracts, and ensuring that the plan fees are reasonable. By doing so, the plan sponsor can mitigate risks associated with poor investment performance, excessive fees, or conflicts of interest.

Improved Decision-Making

A solid governance framework also leads to improved decision-making by establishing an investment policy statement (IPS) that outlines the plan’s investment goals, objectives, and strategies. The IPS can serve as a guide for the plan sponsor when making investment decisions that are in the best interests of the plan participants.

Participant Confidence

Lastly, strong policies and procedures can increase participant confidence in the plan. By providing clear and transparent communication about the plan’s investment options, fees, and performance, participants are more likely to feel confident that their retirement savings are being managed well. This increased confidence can lead to improved participant engagement and, ultimately, better retirement outcomes.

How We Can Help

As a retirement plan sponsor, developing, implementing, and maintaining a strong plan governance framework is crucial to the success of your retirement plan. Developing these policies and procedures can also empower you to make better decisions regarding your plan structure and offerings. At PlanPILOT, we can help you do just that. As an independent retirement plan consulting firm, we have decades of experience helping plan sponsors navigate their options. To learn more, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

2023-1_DOL Revamps ESG Guidance What Does This Mean for Plan Sponsors

DOL Revamps ESG Guidance: What Does This Mean for Plan Sponsors?

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By Mark Olsen, Managing Director at PlanPILOT

In our previous article, we discussed how retirement plan sponsors could navigate ESG investment options and what the fiduciary responsibilities look like for these types of investments. In this article, we’ll dive deeper into the conversation around ESG investing by discussing the latest guidelines from the U.S. Department of Labor. Read on to learn more about the final regulations and how incorporating ESG factors into your plan will affect your fiduciary responsibility, plan fees, and risk for litigation.

Importance of ESG Guidance

As a refresher, ESG is an investment strategy that depends on a system of ratings in three key areas: environmental, social, and governance. ESG looks at the ethical standards and practices of a company and attempts to understand how those will impact the company’s performance in the stock market. 

Because there is no central uniform body of criteria that scores or indexes companies based on ESG factors, private rating firms develop their own standards. Ratings are typically based on self-reported data from the companies they are grading, which can lead to a general lack of transparency and accuracy, making ESG a complicated investment strategy for fiduciaries.

This is where guidance is needed for plan sponsors seeking to add ESG to their investment offerings. As many sponsors are aware, ERISA imposes multifaceted obligations on plan fiduciaries. There are two key fiduciary responsibilities that impact investment decisions and ESG:

  • Fiduciaries are required to act in a prudent way in selecting investments, and
  • Fiduciaries must act for the exclusive benefit of providing benefits and paying plan expenses. 

With such important responsibilities that could lead to litigation and fines if not properly upheld, it is crucial that plan sponsors thoroughly understand the rules and regulations around how to incorporate ESG into their plans.

Overview of New Regulations

The final regulations issued by the Department of Labor offer fiduciaries concrete ways to consider ESG factors. First, ESG may be included, where appropriate, as one of the many “financial circumstances and considerations” used by prudent investors in performing a risk-reward assessment. As stated in the new final regulation:

A fiduciary’s determination with respect to an investment or investment course of action must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, using appropriate investment horizons consistent with the plan’s investment objectives and taking into account the funding policy of the plan established pursuant to section 402(b)(1) of ERISA. Risk and return factors may include the economic effects of climate change and other environmental, social, or governance factors on the particular investment or investment course of action. Whether any particular consideration is a risk-return factor depends on the individual facts and circumstances. The weight given to any factor by a fiduciary should appropriately reflect a reasonable assessment of its impact on risk-return.  

29 C.F.R. Section 2550.404a-1(b)(4) (emphasis added)

Additionally, the final regulations allow fiduciaries to use ESG factors as a “tiebreaker.” As stated in the final regulations:

If a fiduciary prudently concludes that competing investments, or competing investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon, the fiduciary is not prohibited from selecting the investment, or investment course of action, based on collateral benefits other than investment returns. A fiduciary may not, however, accept expected reduced returns or greater risks to secure such additional benefits.     

29. C.F.R. Section 2550.404a-1(c)(2)

Essentially, plan sponsors are allowed to add ESG metrics to their investment decision-making, so long as other factors, namely risk and return, are also properly considered. As long as investments are not chosen solely because of ESG factors, to the detriment of risk and return, the practice will not be considered a breach of fiduciary responsibility.

Role of Participant Preferences

The new regulations also offer guidance on how fiduciaries can respond to participant preferences within ERISA’s fiduciary constraints. Remember: fiduciaries must act for the “exclusive benefit” of providing benefits and paying plan expenses. This requirement can sometimes conflict with what your plan participants want.

Under the final regulations, however, a fiduciary will not violate the ERISA “loyalty” requirement solely because the fiduciary takes into account participant preferences, as long as the fiduciary meets two requirements:

  • The fiduciary reflects participant preferences in a way that is consistent with the general fiduciary requirements for using ESG factors. In other words, any ESG investments offered in response to participant preferences must still be based on the fiduciary’s risk-reward analysis applied to any investment (ESG or otherwise).
  • Any ESG investment in response to participant preferences must still meet the ERISA prudence requirement.

What Does This Mean for Fiduciaries?

So, what does this mean for plan fiduciaries? Here are a few practical takeaways from the new final regulations:

  • The new final regulations do not require that a fiduciary change investment decisions—or how a fiduciary makes its investment decisions.
  • Look at ESG as simply one more potential financial factor to consider in assessing an investment. As noted by the DOL, “prudent investors commonly take into account a wide range of financial circumstances and considerations, depending on the particular circumstances.” 
  • The framework used by the DOL is anchored in fundamental fiduciary principles—fiduciaries must act with the “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.’’  
  • The new final regulations are issued in response to the current focus on ESG—but are applicable to other, new investment practices and theories that may emerge.

Do You Have Questions About Adding ESG to Your Retirement Plan?

The final regulations are a step in the right direction for helping plan sponsors navigate the changing landscape around ESG investing, but there are still many factors to consider before updating your investment offering. If you’re a retirement plan sponsor with questions about ESG, or if you would like to learn more about how PlanPILOT’s comprehensive advisory services can benefit you, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

The Year Ahead - What to Expect from PlanPILOT

The Year Ahead – What to Expect from PlanPILOT in 2023

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By Mark Olsen, Managing Director at PlanPILOT

Planning for the year ahead is critical to ensure we are prepared to meet our clients’ needs and deliver valuable insights in a timely manner. In this article, we outline the themes and activities we expect to be key priorities in our work with clients throughout 2023, as well as inform our thought leadership in the year ahead. 

Beyond “If and When”, Onto “What to Do”

We first want to share that we are picking up on a shift in the way plan sponsors are operating in oversight of defined contribution (DC) plans. In fact, through our work, we’ve observed plan sponsors want to know what to do, the best way to tackle problems and seek solutions, and to understand the practical implications of their activities in plan oversight. We anticipate this shift to underpin all of our work with clients in the year ahead.

Top Priority Themes

  • Changing Landscape and Assessing Suitability of Advisor Partnerships.  The retirement provider landscape — in whole — is layered with complexity and the potential for conflicts of interest. Increasing merger and acquisition activity among providers to support the growing need to identify sustainable revenue streams and the push for product placement, and it adds up to a complex arena for plan sponsors to navigate when selecting a partner in retirement plan oversight. Plan sponsors face the need to assess matters of independence and to ensure their advisor is philosophically aligned to their organization’s values, objectives, and needs. The changing landscape and concern over conflicts of interest brings into focus the importance for committees to conduct thorough due diligence and assess the suitability of their provider partnerships. It is our belief that it is vital to ensure that the priorities of both the client and the advisor are in alignment.  This topic will be a central tenet in our work with clients for the year ahead.

 

  • Collective Investment Trusts in 403(b) Plans – Institutional employer-sponsored DC retirement plans, including 401(k) plans and governmental 401(a) and 457(b) plans, have enjoyed the benefits of collective investment trusts (CITs) for the better part of fifteen years. Over the last several years, legislators have worked to pave the way to allow CIT use in 403(b) plans, which is currently not permitted. In late December 2022, SECURE 2.0 passed (1), opening up the potential use of CITs in 403(b) plans. There was a loophole in the final regulations which requires a revision to federal securities law in order for CITs, as well as pooled Stable Value funds to be permitted in 403(b) plans. There are pros and cons to CITs, but in aggregate, the greatest benefit is cost efficiency. We expect the topic to be front and center in 2023 as we prepare our clients for using these vehicles in 403(b) plans. 

 

  • Environmental, Social and Governance (ESG) Finalized – All eyes have been on ESG over the last several years. Actual implementation and use of ESG options in DC plans have remained fairly lackluster to date. However, the overall interest in ESG is not dying down. In fact, the complexity of the topic is increasing – with much debate about the value proposition of ESG and the question of how, and even if, plan sponsors should incorporate ESG in DC plans. The Department of Labor’s Final Rule on ESG – Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (2) clarifies that the changes to the regulation enable fiduciaries to factor in the impact of a broader range of ESG factors on investments. The DOL clarified that the amended regulation continues to require fiduciaries focus on relevant risk-return factors. It also makes clear that fiduciaries cannot take on excessive risk or sacrifice returns in the ESG pursuit. We anticipate the debate and evaluation process to continue as plan fiduciaries consider ESG investing. 

 

  • Custom Qualified Default Investment Alternatives (QDIA) – Last year, we wrote about the broad range of QDIA offerings and the evolution in the choice of solutions. In 2023, we anticipate the demand for customization of the default alternative in defined contribution plans to gain momentum. The appeal of a custom solution is that it allows for tailoring of the glide path and underlying investments to your plan objectives and investment beliefs. Often, custom solutions are more appealing to larger plans as scale and buying power make the endeavor more cost effective. As DC plans continue to grow and evolve, we expect this trend to be a focus area in 2023 in our work with clients, particularly given the ability to tailor the design of the default to the unique needs of individual plans. The assessment process for selection, implementation, and monitoring is vital to get right, and it is now more important than ever given the role of the default offering in achieving successful retirement outcomes. 

 

 

  • Retirement Income Solutions – In our paper series last year, we covered the broad array of solutions and provided suggestions for plan sponsors in the retirement income pursuit. We expect 2023 to bring more deliberate retirement income solution assessments and pursuits. Specifically, plan sponsors are moving toward assessments that review retirement income offerings based on the unique characteristics of the offering and alignment to plan needs. In other words, retirement income pursuits are aimed at integrating a solution or a range of solutions for purpose.

 

 

  • Raising Risk Literacy in Plan Oversight – We covered how risk comes in many forms in our paper series last year. The last year has accentuated this point – bringing into focus the reality of experiencing these various risks inside of retirement plans. Inflation has remained high, interest rates have been on a steady increasing trajectory, volatility and downside risk have crept into the market environment, and participants understandably are reacting, with 401(k) withdrawals on the rise and hardship withdrawals at an all-time high in 2022. (3) The reality of the range and impact of the various risks faced in retirement plan oversight, and ultimately affecting participants, will be central to plan sponsor work in 2023.

 

  • Importance of Staying Vigilant with Litigation on the Rise – The number of class action 401(k) and 403(b) lawsuits in 2022 was significant, due in part to the U.S. Supreme Court decision vacating a Seventh Circuit decision (4) in early 2022. The decision makes it easier for plaintiff lawsuits to survive motions to dismiss. As a result, we can expect this steady trend of lawsuits connected to plan monitoring and excessive fees to remain in focus… requiring plan sponsors to stay vigilant in their plan work.

Stay Tuned!

These themes… and more will shape our work and inform our client partnerships in 2023. You can expect us to produce thought leadership to illuminate the importance of each of these priorities, as well as provide actionable insights for you and your committee to leverage in your day-to-day plan oversight. Rest assured that we are prepared to help our clients tackle these topics effectively. We also welcome and value your input. If there are topics you would like us to add to our thought leadership list, please get in touch with us. 

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

_____________

(1) Securing a Strong Retirement Act of 2022, H.R. 2954 https://www.congress.gov/bill/117th-congress/house-bill/2954/text

(2) https://www.federalregister.gov/documents/2022/12/01/2022-25783/prudence-and-loyalty-in-selecting-plan-investments-and-exercising-shareholder-rights

(3) Source: Vanguard https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/vanguard-investor-pulse.html

(4) https://www.supremecourt.gov/opinions/21pdf/19-1401_m6io.pdf

2022-12_Investing 101- 3 Benefits of Diversification

Investing 101: 3 Benefits of Diversification

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By Mark Olsen, Managing Director at PlanPILOT

When it comes to investing, the term diversification is often thrown around—often along with the age-old phrase “Don’t put all your eggs in one basket.” But what does it mean to diversify, and how can you make sure your portfolio is diverse?

Even if your understanding of diversification is already solid, to better understand how you can reduce volatility in an uncertain market, it’s helpful to review its benefits.

Minimize Risk

One primary role of diversification is to minimize risk in the stock market. This doesn’t just mean diversifying between growth stocks and value stocks. True diversification requires incorporating a mix of different types of investments—think stocks, bonds, international investments, real estate, etc.

There are varying factors that govern the amount of risk you’re willing to accept. If you are banking on your money being there for you on a certain date, it may align better with your financial plan to utilize a more conservative mix of investment assets with a history of lower volatility. Having a portfolio that is diversified with lower risk will give you peace of mind.

As we mix and match asset classes and strategies, risk-capacity decisions need to be made no matter the timeline length. By optimizing the way your portfolio is constructed, we can help minimize risk and maximize returns.

Increase Your Potential for Added Gains

Since its inception in 1926, the average return from the S&P 500 has been 10-11%. Learning a bit of stock market history often puts many at ease when deciding to move money from a savings account into the stock market.

Downturns and recessions are certain realities during one’s lifetime, but those are the same reasons why many wealth managers suggest taking a long-term view on investing. Simply keeping your money in the stock market versus quickly buying and selling is a risk-mitigation strategy of its own.

These downturns also pose new opportunities. Take the global pandemic, for example: 2020 created a unique window of opportunity. Certain high-growth investments performed exceptionally well as the economy reacted to COVID-19, while the brief drop in the market made some value investments available at deeply discounted prices. 2020 provides an example of how investments respond differently to economy-wide shifts, which underscores the importance of diversification as a hedge against both short and long-term losses.

Because of the unpredictability associated with short-term stock market success, diversification and investing according to when you need the money can help you reach your goal with more confidence when compared to putting all your eggs into one basket. 

The Ideal Mix

Perfection is notoriously unattainable, so calling an investment mix “ideal” can feel like a loaded term. Everyone has their own unique goals, dreams, timelines, and risk capacity—what’s ideal for one may not be ideal for another. In general, the closer you are to retirement, the more conservative investment mix you might hold. Remember that portfolios can change with time; that’s the beauty of the stock market—you can change your portfolio as your goals evolve. 

Ready for the Next Step? 

As with anything related to your hard-earned wealth, when it comes to investment decisions, it’s wise to meet with a financial professional—someone who can learn about your personal circumstances and tailor their advice to your specific financial goals. 

At PlanPILOT, we are committed to guiding you toward success so you can feel confident in your financial future. If you’re looking to partner with an experienced advisor you can trust to put you first, set up a get-acquainted meeting to see if we’re a good fit. Call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com. 

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.