• TRO outsourcing can offer many benefits to plan
sponsors, including combined data on participants
in their defined contribution and defined benefit
plans, a combined nondiscrimination testing
environment and a greater visibility of the value
of benefits to employees.
• When helping advise a DB plan, advisers can
help sponsors determine the break-even point of
a pension risk transfer transaction.
• Advisers can increase their assets under advisement
and enhance their relationship with plan sponsor
clients by helping to quarterback the work across
the TRO platforms and among the providers involved
with the various plans.
• For NQDC plans, advisers can help plan sponsors
by coordinating or delivering education to eligible
employees about the plan’s benefits.
of. Back in 2011, she says, Milliman was contracted by a
Pacific Northwest company to administer its hourly and salaried pension plans. These plans had been in place for more
than 50 years and had always been administered in-house.
Although the plan sponsor had been reluctant to
outsource, data issues were hampering the pension administration, stemming from multiple HR/payroll system
upgrades that had led to historical data being housed in
four different databases, she says.
In addition, retiree data was not current on the compa-
TRO and PRT
ny’s systems, and the vested benefits of past terminations
were unreliable, Sorenson notes. “As a result, participants
experienced a six- to nine-week turnaround for estimate
and retirement requests. The unreliable data also ruled out
any opportunity for the use of online calculator tools.”
Asked to address these challenges, Milliman suggested a
phased implementation—a strategy that advisers may view
as ripe territory for collaboration with the plan provider.
It resulted in a unified retirement planning environment
where participants had efficient, accurate and complete
access to their plan information across all DB, DC and NQDC
plans, Sorenson concludes. Such an environment allows the
adviser, plan sponsor and participants to have more fruitful
conversations, centered on goal setting and unique indi-
vidual challenges. The idea is that the benefits of retirement
readiness metrics or planning discussions can be far more
valuable when the parties have more—and more accurate—
information from one provider.
The defined benefit market for pension risk transfer continues
to grow—having topped $1 billion per quarter in recent
years, according to the LIMRA Secure Retirement Institute.
Wayne Daniel, senior vice president and head of MetLife’s
U.S. pensions business in New York City, says one powerful
service that advisers can provide for TRO clients with one or
more bundled pensions involves analyzing and monitoring
the pension risk transfer (PRT) environment—offering a
third-party perspective that both the plan provider and plan
sponsor can use in their administration decisions.
Understanding and defining the PRT break-even point
is a task that will be challenging for non-financial professionals—i.e., most plan sponsors. As Daniel points out, there
are a number of explicit and implicit costs and benefits to be
weighed in PRT decisions. “Depending on the approach used,
these costs and benefits may vary widely. For annuitization,
they may entail the differences among the plan’s current
funded status, existing assets and the amount required to
settle all or a portion of the liability,” he says. “For sponsors used to viewing the accounting liabilities as the ‘true’
measure of the liability, rather than as a current ‘snapshot,’
an insurer’s estimate of the actual cost to transfer the
liability permanently is different.”
TRO Increasingly Involves NQDC
As the 2015 PLANSPONSOR Nonqualified Deferred Compen-
sation (NQDC) Buyer’s Guide—our latest—shows, a sizable
portion of this marketplace has moved down the road of
bundling NQDC and qualified defined contribution plans
together. The research shows nearly a quarter (23%) of
employers with an NQDC plan utilize the same provider
for their DC plan administration, while 6% have bundled a
defined benefit plan with their DC and NQDC arrangements.
An additional 10% identify using “other NQDC bundles”—
for example coupling their DC plan benefits with long-term
executive incentive programs.
Advisers will find multiple opportunities in the NQDC
plan arena. Consider that more than half (57%) of the plan
sponsors surveyed for the Plan Sponsor Council of America
(PSCA) 2016 Non-Qualified Deferred Compensation Plan
Survey offer the same menu in these plans as in their quali-
fied defined contribution plans. If advisers already provide
expertise on these investments in the DC plan and know
such options are available on the NQDC plan platform, TRO
can be an easier conversation, experts say (see “Expanding
Savings Options,” PLANADVISER May/June 2017).
According to the PLANSPONSOR NQDC Buyer’s Guide
results, although employees eligible for these plans are
often well-compensated, they may not understand the
need to have supplemental retirement savings outside of
their qualified plans. This can be where the adviser adds
value to the plan sponsor by supporting it with robust
advice and education.
Education in this context begins by helping eligible
employees understand the value of the NQDC plans available to them. Advisers might then move on to work with
executives to help them understand how they can use such
a plan to prepare for near-term and long-term objectives,
such as putting money aside for college tuition or paying off
a mortgage—not just for retirement, says Dan Barry, senior
vice president with Lockton Executive Benefits in Charlotte,
North Carolina. —John Manganaro