PLANADVISER - July/August 2022 - 26

plan design / modeling
was not using a qualified automatic contribution arrangement
safe harbor plan. The response, Maloney says, was
that the plan sponsor was unaware of the QACA safe harbor
provisions. SRP developed a model that illustrated how
the plan would increase to a 100% match on the first 1% of
compensation, which would raise the total match outlay to
3.5% of the first 6% of compensation, vs. 50% of 6% compensation
for a 3% total cost.
SRP also recommended a vesting schedule change from
the company's four-year-i.e., increasing by 25% a year-
schedule to two-year cliff vesting. " We calculated what its
match was currently, what it could be, and then what the
return on investment was, based upon having the two-year
vesting schedule that would be added, " she says.
The employer, which Maloney describes as " very paternalistic, "
decided to use the two-year vesting schedule with
new hires while letting employees on the four-year schedule
finish it out. The QACA safe harbor arrangement also solved
the excess contribution problem for highly compensated
the same, but the employer creates a second matching
tier to motivate participants' behavior. " [The sponsor] may
consider keeping the dollar-for-dollar up-to-3% base match
but will add a tier so it matches $0.10 on the dollar for the
next 7% of eligible compensation, with the goal of getting
the participant to save 10%, " Stamper says. " It adds a sweetener
to the matching formula so participants are less likely
to feel something was taken from them in a change to the
base match. "
Number Crunching
It is easy to explain, and for sponsor clients to grasp, the
concepts behind model changes such as these, but the
proposals and their projected costs must meet multiple
departments', and the plan board's, approval. " We have to
bring it back to the fact that we always have three bosses, "
Maloney observes. The human resources staff will be looking
out for employees' well-being, and it wants the plan to attract
and retain quality employees. Finance will be considering
the budget and asking about the return on
investment for any proposed expenditures.
Adding plan features is like adding
options to a new car: They can
improve the ownership experience,
but they usually increase the cost.
employees and provided recruiting and retention benefits.
" The [client] was able to [stand] out, in a market where it's
trying to aggressively attract and retain employees, by
saying it increased its match, " Maloney says. " And it was able
to give them definitive proof that it's doing more than other
companies in its industry, so that if someone were to leave
to go to a competitor around the corner, it could stand pretty
firm and say [the employee] wouldn't be able to receive the
same kind of benefit package at the other employer. "
Stamper points to an example of modeling a plan in
which the company recognizes the need to maintain a
competitive benefits program but also wants to avoid
increasing the plan's matching cost. " If the finance team
says, 'We don't want to spend any more than we're spending
today on the match,' one option would be to stretch the
matching formula, " Stamper says.
For example, if the current match is dollar for dollar up
to 3%, the company could change the matching formula to
25 cents on the dollar up to 12%. " If the participant then
changes their deferral
to 12%,
they're putting in more
dollars, but the dollar amount of the company outlay will
be the same, because the math has changed on the match, "
Stamper says. " Match stretching is one way that companies
have tried to encourage participants to contribute more
while keeping company contributions relatively consistent. "
Stamper offers another modeling scenario based on
matching tiers. In these plans, the base match remains
" And third, we look at it from the CEO's or
the board's perspective to make sure we're
not adding any risk to the company or to
its capital by having these plans, " she says.
" Have we done everything from a fiduciary
perspective to reduce, mitigate or eliminate
risk that could be in the retirement plan? "
The decision about proposed design
changes will likely hinge on the anticipated
impact they would have on participant behavior and
the plan's costs. In the previous example, SRP staff developed
a " very large " spreadsheet that included data on 3,000
employees' hire dates and current match. Using that data,
the firm forecasted the proposed match cost and extrapolated
it, based on the company's turnover, to develop an
ROI estimate. " It's just a lot of number-crunching, " Maloney
says. " We have one person doing all the work, and we have
a peer review where a couple of us check it over. Then we
compare all that data with industry data-we usually get
our industry data from Franklin Templeton, because it
receives the PLANSPONSOR industry reports. "
An adviser with no in-house staff, or with none to utilize
for model development, may seek partners to assist with the
work. Compton's firm is not a third-party administrator, he
says, but it works closely with its TPA-partners to keep its
participant census data current. With that information, Brio
Consulting can create Excel spreadsheets to build the models.
Stamper, too, has had good experience with TPAs and
recordkeepers helping with plan design change calculations,
he says. In his experience, it is helpful to leverage existing
partners and the tools they have, to develop different
scenarios. " Then, once the numbers are back, it's a matter
of facilitating the conversation and discussing priorities, " he
says. " We may go back to these providers and ask them to
tweak some of the scenarios based on the priorities of the
client. " -Ed McCarthy
26 | planadviser.com July-August 2022
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PLANADVISER - July/August 2022

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