PLANADVISER - Fall 2023 - 24

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tion costs and bring substantial assets to the manager. " So,
the investment management firms have been willing to give
OCIOs reduced fees for their clients, " Halberstadt says.
A growing number of sponsors are debating switching to
a digital plan provider and recordkeeper, according to Escalent's
Planscape survey: 43% of respondents said lower fees
and better cost structures were their main reasons. Other
motivations were better digital capabilities, easier participant
onboarding, and payroll integration. " We began tracking
digital recordkeepers in last year's study, and, since then, five
firms have increased their overall brand awareness, " Davis
says. " They are gaining more recognition in the marketplace. "
For smaller plans, there are additional steps they can
consider, Dani says. Among his suggestions:
* Recommend the sponsor use a provider-platform's 3(38)
option to analyze funds; this frees your time to help participants
and work with the sponsor to monitor service providers.
* Ensure the payroll provider and recordkeeper have a
high-quality integration, to save the payroll department time.
* Use the Social Security Administration's determination
of disability to save time and money in disability claims.
* Work with a 3(16) service to ensure accurate and timely
plan administration; this helps prevent plan sponsor errors
and the potential for penalties.
Modify Plan Design
A pooled employer plan or a multiple employer plan could
also provide cost savings. Dani says several chambers of
commerce and trade associations now offer these to member
organizations, and the plans' availability is increasing.
Montanye explains that DBR & Co. is the lead sponsor on
a MEP, and the firm " has found that that's a great solution
for small employers and startups. "
Startup plans lack assets and buying-power in the
market, she says. They do not receive the most competitive
rates for recordkeeping, administration and some investment
strategies' lowest-cost share classes. Pooling their
assets can lead to lower costs.
Some possible plan design changes will need to be clarified
or aligned with the company's goals and culture. Still,
the adviser can help the client determine what may work for
its plan, says Blade Zych, a retirement plan consultant with
OneDigital Retirement Plan Services in Atlanta. One option
could be to cap the company match, allowing an employer
to predict the match cost.
Another possibility is a three-year cliff vesting schedule
instead of a longer-term graded schedule. For example, a
plan with a five-year graded schedule at 20% per year would
recapture only 60% of the match dollars if an employee
leaves with two years of vesting credits,
Zych says. They would recapture 100% of
the match dollars with a three-year cliff.
DESIGN CHANGES TO REDUCE
DEFINED BENEFIT PLAN COSTS
DEFINED BENEFIT plan sponsors can make design changes to modify
the balance of risk-sharing between the employer and employee, says
Michael Clark, managing director with Agilis, an actuarial and investment
consulting firm in Denver. One such change is shifting from a
traditional cash balance plan to a market-based one. In a traditional
cash balance plan, the interest credited to participants' balances is
generally either a fixed amount, such as a flat percentage rate, or a
rate tied to the yield on the 30-year Treasury bond.
The Pension Protection Act of 2006 and subsequent regulations allowed
linking the interest credit to a market rate of return. " That means you
can tie the interest credit to the performance of the plan's assets, "
Clark says. " So now you have a cash balance account that's more or
less acting like a 401(k) balance. There are some nuances still related
to that, but it means the employer no longer bears the investment risk.
Instead, the benefits provided to employees are tied to the investment
performance. "
The trend toward DB plan freezes and closures to new entrants continues
to slow, according to Beth Halberstadt of Aon's wealth solutions practice.
This slowdown partly results from fewer corporate DB plans operating
now than in the past. " That said, we're seeing significant pension risk
transfer activity, " she says. " These transfers can produce material cost
savings for plan administration, [Pension Benefit Guaranty Corporation]
premiums, risk levels, overall liability and plan funded status. " -EM
" With the majority of turnover occurring
within the first three years, this schedule
will help the company retain those match
dollars; the company can then use them
to offset plan expenses or future matching
contributions, " he explains.
Rob Reiskytl, a partner in Aon's
wealth solutions practice in Minneapolis,
suggests advisers recommend multiple
small design tweaks by which the client
can lessen costs. These might include
delaying the timing of the DC plan allocation
to the end of each quarter or year;
requiring employment on the last day of
the plan year to be eligible for some or all
of the annual DC allocation; or reducing or
eliminating early retirement subsidies for
new DB plan accruals.
Still, have plan sponsors keep in mind
that it is easier to expand employee
benefits than to reduce them, Montanye
cautions. Participants might resist such
changes. " When you're talking employer
contributions, vesting, what employees
get out of the plan, that is their benefit;
that's part of their compensation package, "
she says. " Reducing that will be a very
unpopular
decision among employees
because it essentially is less financial
benefit to them. " -Ed McCarthy
24 planadviser.com | Fall 2023 | Practice Management
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