Washington. Regulation. Litigation.
Attendees at the Plan Sponsor Council of America's annual conference learned last week what's happening and what might happen to the retirement industry in Congress, in regulatory agencies and in court — as well as what they can do without waiting for new legislation or regulation.
At the top of the list was the prospect of a broad tax proposal offered by President Donald Trump and the anticipated response by Congress to craft a detailed version of tax reform which, PSCA officials hope, will retain tax benefits that encourage retirement savings.
“We are doing everything we can to educate lawmakers in Washington,” Kenneth Raskin, the newly elected chairman of the PSCA board, said during a May 2 news conference at the PSCA's conference, held in Chicago.
“We hope there won't be a fight,” said Mr. Raskin. “Right now, there isn't.” He was referring to a tax proposal from Mr. Trump that appears to retain deductions for retirement savings, home ownership and charitable donations, while eliminating other deductions.
Given the potential complexity of tax reform, “We want to be prepared,” Mr. Raskin added.
PSCA is a founding member of the Save Our Savings Coalition, created in early April by prominent retirement industry members including the American Benefits Council, Defined Contribution Institutional Investment Association and Employee Benefit Research Institute, to explain to legislators how tax benefits promote retirement savings.
Having “more than one voice is more effective” in efforts to protect retirement plans during debates about taxation and regulation, said Mr. Raskin, a New York-based partner in the King & Spalding law firm and chairman of the firm's employee benefits and executive compensation practice.
“Everybody is optimistic but cautious about protecting” the retirement industry's tax benefits, said David Levine, a principal at the Groom Law Group, which is PSCA's Washington lobbyist as well as an adviser to the Save Our Savings Coalition.
Mr. Raskin said PSCA didn't have immediate concerns about the Labor Department's recent decision to delay by 60 days the implementation of the fiduciary rule.
“I don't see any harm” giving sponsors a few more months to better study the potential impact of the rule, now scheduled to take effect June 9 instead of April 10, Mr. Raskin said.
Because different service providers are “going down different roads” in deciding how to offer services based on the fiduciary rule — distinguishing between fiduciary advice and non-fiduciary information — “sponsors are caught in the middle,” said Mr. Levine.
Several PSCA executives agreed that whatever the final form of the rule, the prolonged process has given sponsors an opportunity to better study service providers' contracts.
Ask questions; check documentation
Asking questions and checking documents was a constant theme at several sessions at the PSCA conference, especially in reference to reducing the risk of lawsuits and avoiding surprises when dealing with service providers.
“Ask what you are required to sign,” Mr. Levine exhorted plan sponsors during a May 3 discussion about legislation and regulation. “It's your responsibility as a fiduciary.”
Documenting actions and deliberations “is the key to protecting yourself,” said Michael Sasso, partner and co-founder of Portfolio Evaluations Inc., a Warren, N.J., investment consulting firm, during a May 3 session on plan fees.
Listing major recent ERISA fee lawsuit settlements, Mr. Sasso said sponsors must document why they believe fees are “reasonable.” “You don't have to have the lowest” fees, he said. “I still come across plan sponsors that don't know what they are paying.”
His firm recommends several best practices for fiduciaries, such as understanding the current pricing model for their plans; benchmarking fees periodically, usually every three years; monitoring investment fees and opportunities for consolidating investment options; and documenting the review process.
Reviewing a series of settled and pending ERISA fee cases, attorney Thomas Clark E. Clark Jr. said the common lesson is “have a process” and document that process.
“What price are you willing to pay for not having a process,” Mr. Clark, a St. Louis-based partner at the Wagner Law Group, asked attendees at a session on ERISA litigation. “It's far cheaper for you to have a process than to be fighting five year later over what should have been done.”
Still, good ideas won't succeed without good communications and a clear strategy for execution, according to several conference speakers. Such principles are especially important as more sponsors develop and implement programs to enhance financial wellness.
“If financial stress were a medical disease, it would be considered an epidemic,” said Harry Gottlieb, founder of Jellyvision Lab Inc., Chicago, a provider of interactive software for financial wellness programs, 401(k) plans and company benefits such as health insurance.
“No group is better positioned to reach out a hand and pull people out of their financial misery” than employers, Mr. Gottlieb said in a May 2 speech. “You are the ones who can do this.”
Alleviating employees' financial stress “is like giving them raise,” Mr. Gottlieb said, because it's helping them save money. Lowering employee stress also helps raise a company's bottom line.
Sponsors wishing to create financial wellness programs must ask themselves, “How far should I go? What makes sense for my organization?” said Kenje Mallot, financial solutions product manager at Aon Hewitt, Lincolnshire, Ill., at a May 2 session on defining the employer role in employees' financial well-being.
She urged sponsors to define their role. As a quarterback, “you jump in,” providing “lots of handholding,” she said. As a coach, a sponsor would provide advice but leave it up to employees to act. Some sponsors prefer to act as parents, being protective of employees, while some act as cheerleaders, providing positive enforcement.
Ms. Mallot said sponsors should set up a measurement system. analyzing, for example, the initial reaction plus impact at the third and fifth year of operation.
Security means not outliving your assets
Keynote speaker Robert Merton said retirement security depends more on how people avoid outliving their assets than how much they accumulate before retirement.
There are four strategies for improving chances for a secure retirement: save more and consume less; work longer before retiring; take more risk in investment and be prepared for the consequences; and “improve the income benefits from assets that are already available,” said Mr. Merton, professor of finance at the MIT Sloan School of Management, Cambridge, Mass., during his May 2 speech.
That latter category includes investing in annuities, employing a reverse mortgage, and following “goal-based investment strategies,” he said.
Mr. Merton encouraged sponsors to adjust their employee communications and plan design to emphasize a replacement income goal rather than focusing solely on wealth accumulation. Those goals must be customized to take into account salary, age, gender and assets, he said.
The first question participants must answer is what is considered a “good” retirement, Mr. Merton said. That would entail keeping an individual's same standard of living, “measured by a stream of income, not a pot of money,” he added.
Also at the PSCA annual conference, the PSCA board announced that John M. Towarnicky had been chosen executive director, succeeding Anthony Verheyen, who announced in October he wanted to return to the private sector. Mr. Verheyen will remain with the PSCA until June 15 to assist with the transition of leadership. Details on his plans could not be learned.
PSCA also presented Anna M. Rappaport, president of Anna Rappaport Consulting, with its lifetime achievement award. The award, established by the PSCA in 2015, recognizes individuals who have contributed to the growth of the defined contribution plan industry over their careers.
Ms. Rappaport founded her own consulting firm in 2005 following a 28-year career at Mercer Human Resource Consulting, where she was a principal and senior consultant at the time of her departure.
Executive Editor Julie Tatge contributed to this story.