PLANSPONSOR - December 2018/January 2019 - 24

Sponsor Considerations
Joshua Ulmer, corporate client group director at SeaPort Group
at Morgan Stanley in Portland, Oregon, has discussed with
several plan committees whether they want to get involved.
" Considering the issue philosophically and culturally, that's
where I like to start, " he says. " Do the committee members have
the desire to not only get their employees to a secure retirement,
but to provide the infrastructure for them to turn that balance
into income in retirement? "
Westminster Consulting LLC has started a dialogue with
plan committees by talking about how much money is coming
out of their plan, says Sean Patton, partner and senior consultant
at the Rochester, New York, advisory firm. Lower total assets in
a plan can translate into higher participant fees. " Every quarter,
we show the committees their plan's data on withdrawals from
distributions. For some of our bigger clients, it's a couple million
bucks a quarter, " he says. " They're right at the beginning of
examining these withdrawals and determining, 'What is the
best way for us to help people with this issue?' "
Offering distribution-phase help means extra work for plan
committees. Sponsors have an increased compliance burden if
retired employees stay in the plan, Ulmer says. " They are account
holders, and they need to receive all the required notices, " he
points out. " If the sponsor is on the hook for that, it's important to
have accurate electronic contact information. "
The hesitation some employers feel about getting involved
speaks to a broader concern some have about playing a role in
employees' financial-wellness issues that goes beyond saving in
the company retirement plan, Nydick says. " At a very meta level,
it seems like a good idea to help people, " he says. " But what we've
heard from many of our plan committees is, 'Why is it our job to
worry about that?' They are wondering, 'At what point does our
responsibility end, and what kind of liability are we bringing on
ourselves for going to the trouble to do this?' "
Offering distribution-phase assistance brings up fiduciaryresponsibility
issues for committees, Ulmer says. " Your retirees
typically have the highest account balances among your participants,
and, if that money stays in the plan, they are unquestionably
an asset in bringing down plan costs overall, " he says.
" Retirees often are more engaged participants, and some people
associate higher engagement with higher fiduciary-liability risk. "
If plan sponsors decide to offer investments aimed at
helping with retirement income, that does mean more due diligence
work, says Michael Esselman, director of investments at
401(k) Advisors Intermountain in Sandy, Utah. " From a fiduciary
standpoint, there are certainly some additional challenges.
But that's true anytime you add a more complex investment to
your menu, " he says. " I don't think a committee should shy away
RETIREMENT-INCOME MENU IMPACT
I
f plan sponsors decide they want to help
participants address their retirementincome
issues, it has implications for a
plan's investment menu.
The core lineup may need tweaking,
to add bond funds. " Fixed income should
be a critical component for participants'
allocations in retirement, " 401(k) Advisors
Intermountain's Michael Esselman says.
" This is where a lot of plans are lacking.
Too many have too-narrow options on
their core menu, and they need to build
out the fixed-income options. " Many of
401(k) Advisors Intermountain's new
plan clients have only a couple of fixedincome
funds, and the advisory firm often
helps expand that to three or four, adding
options such as a multi-sector bond fund
and a global bond fund.
Additionally, a plan committee
should think about its default investment,
with retirees in mind. " Clearly, most
participants are going to be in target-date
funds [TDFs], and you can't dispute the
fact that they're not the greatest decumulation
vehicles, " Esselman says. Retiring
participants have widely diverging situations
and needs, and the one-stop-shopping
aspect of target-date funds means
they lack customization. So it is crucial
for sponsors to understand the risk levels
their target-date funds pose for participants
at retirement age and beyond.
" I hate to get back into the 'to versus
through' glide path discussion, " says
David Kulchar of Oswald Financial Inc.
" But if you're trying to get people to keep
their money in the plan in retirement,
you probably want a glide path that keeps
tapering off the equity allocation into
retirement, versus a glide path that levels
off the equity allocation at age 65. "
Pairing a " through " target-date fund
default with plan design that allows
systematic and ad hoc withdrawals helps
retiring employees but also has some challenges
for plan sponsors evaluating their
default investment, says Joshua Ulmer
22 PLANSPONSOR.com December 2018 - January 2019
of Seaport Group at Morgan Stanley. An
investment meant to fund someone's
retirement-income needs should take
into account numerous factors including
longevity risk, market risk, inflation risk,
health care expenses and Social Security
benefits-some of which differ substantially
among retirees. " All of a sudden,
there are many complex and interrelated
variables, " Ulmer notes.
Sponsors could go a step further and
start utilizing a target-date fund family that
incorporates an annuity component-a
choice that has pros and cons. " The 'pro' is
that this looks more like a defined benefit
[DB] plan once retirement starts, " says Sean
Patton of Westminster Consulting LLC.
" The participant won't have to worry about
the investment of these dollars, moving
forward, and it would create a lifetime
income replacement. " But his clients have
yet to take this route, which he attributes
partly to their perception that it brings
increased fiduciary responsibilities. -JW
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PLANSPONSOR - December 2018/January 2019

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