When not leading the retirement services group at New York Life Retirement Plan Services, Westwood, Mass., Don Salama is embarking on his second career as a professional race car driver. In 2004, Mr. Salama joined Turner Motorsport, a professional racing team. He is the 2006 Grand-Am Cup ST Drivers Champion and 2003 ST-1 Team Champion. He has been honored by BMW Motorsport with top-20 driver rankings in 2005 and 2006.
Mr. Salama views his primary job as senior managing director and head of retirement plan services in much the same way. “Racing is in my blood, and so is sales,” he said. Mr. Salama joined New York life in 2002, working in sales, marketing and product development before being promoted to head the retirement services division in 2006. He has spent 22 years in the retirement services industry.
What are the biggest trends in defined contribution now? The obvious ones are auto-enrollment, the evolution to target-date funds and managed accounts. A few years ago we began to see it and now it's just accelerating. Unfortunately, for many plans, auto-enrollment means just enrolling new employees. We would like to see it broader, for more plans to take a look at their employee population and re-enroll existing employees.
What is driving these trends? I think the (Pension Protection Act) really accelerated things. Thank you, government, you finally did something in the right direction instead of distracting employers. The (qualified default investment alternatives) are a great step and are endorsing positive behavior. We're seeing a lot of interest in target-date funds, but the other QDIAs (managed accounts and balanced funds) are also valid. It's a very positive step from the government to address these retirement savings issues.
What are your thoughts on the QDIAs? Obviously there is a lot of talk about target-date funds, and we are strong believers in them. But it's a plan-by-plan decision. For many, managed accounts could make sense as well as balanced funds. Again, we think the PPA did a great service in encouraging auto-enrollment and the final regulations also got it right.
Are you seeing a DB'ing of the DC world? We see it as more of a plan design issue than product thing. I think we have the ability to connect accumulation with decumulation. If there is a solution where you're going to auto-enroll into a managed account, that is a product decision. But, the bigger picture is that of a plan design issue, if the plan is going to move part of the assets into an insurance piece.
What's your view on annuities as a DC investment option? We looked at it and decided not to go forward with our own option, not because it's a dumb option, but annuities are not a “you build it and they will come” option. Plans are not ready to jump in; they are not ready for it. But we are monitoring what is out there in the market. We are still researching it, but I'm skeptical. It's a product that's asking at age 32 are you going to guarantee assets for when you're 65. Will employees make that calculation and make the right choice? We don't know yet.
Are you looking at any new markets? We just expanded our 401(k) services for plans with $5 million to $30 million in assets. We are offering an open architecture customized service for small plans. Traditionally, plans of this size get cookie-cutter solutions that work best for the provider. We will offer services traditionally offered to larger plans, like ERISA consulting, full revenue and fee disclosure, plan-specific communications and education materials and investment advice.
What are some of the biggest challenges plan sponsors are facing? Plan sponsors need more help. They want to trust us to do the right thing and they are looking for us to give our point of view instead of just providing options. They are waking up to the fact that their employees are worried about things after they leave the plan. They tell us we need to do meetings with 50- and 60-year-olds to educate them on what to do (with their accumulated assets) after retirement.
Are plan executives concerned about fee disclosure? They figured out the fee thing. Now, the industry has normalized that. On the provider level, it's very important to disclose fees associated with your products. There is still debate over how much to disclose to employees. You don't want to overwhelm employees with too much information. You don't want to make inertia worse. If an employee gets overwhelmed, they may not participate (in their 401(k) plan) and no one wants that.
What are some of the new things plan sponsors are doing? I think plan sponsors are taking another look at advice. Plan sponsors want to provide advice to participants more now than ever. And plan sponsors are more accepting of getting advice. We work with Morningstar (Associates LLC) for investment advice. The most logical mode for advice is over the phone. Employees want to call up the service center and many are still intimidated by web models. Employees look at advice like “they are endorsing my decision.”
With the DC market continuing to consolidate, do you see any acquisition opportunities? What's added fuel to the fire are the subprime problems. It creates an environment where their retirement plan business is not part of the core strategy anymore. For New York Life, it's a core strategy and will continue to be. We look at all the acquisition possibilities.
What would you look for in a potential acquisition? For us, growing organically is a priority, but we would bite at an acquisition that makes sense for us. But, the pricing on those that have been out lately has not been smart. For every acquisition, there are 10 active, legitimate buyers, so that complicates things too. Also, there is little synergy with small players. We would be interested in the mid or large (plan) market.
Who are your biggest competitors? What makes New York Life different? I'd say Fidelity, Prudential, MassMutual, Diversified, Vanguard and T. Rowe Price are our competitors. And Schwab is an up-and-comer. They bought a firm like ours. (Last year, Charles Schwab Retirement Services acquired The 401(k) Co.) I feel that our boutique view of the world makes us stand out. We are focused on delivering personalized, customized service to our clients. That's one of our strengths. I also think it's a great time for insurance companies as we integrate insurance products into retirement plans. There's stability in an insurance company as you have a flight to safety and are looking for product creativity.
What keeps you up at night? Lots of things, really. Sometimes it's Red Bull. But seriously, the thought of a long, drawn out market contraction, a bad economic cycle, bad participant behavior, and selling low and buying high are things that keep me up. Also, the desire for the company to grow and continue to be a pioneer keeps me on my toes.
Contact Jenna Gottlieb at [email protected]
