Fees a hot topic at DC West conference

(updated with correction)

The continued fee scrutiny that plan executives face permeated discussions at Pensions & Investments' West Coast Defined Contribution Conference, held in San Diego Oct. 23-25.

In a keynote address on the future of U.S. retirement policy, Michael P. Kreps, principal at Groom Law Group, spoke on the “significant uptick” in fee litigation, which he believes will persist.

“We see now a generation of lawyers or litigators who have grown up working on fee litigation,” Mr. Kreps observed. “These (lawsuits) are not going away.”

He noted that the Department of Labor's proposed Form 5500 reporting changes, which include greater fee disclosure, would arm lawyers with more information on fees charged by individual plans.

While larger plans were generally the first to be targeted, Mr. Kreps also expects fee lawsuits to move down market, noting he recently saw a lawsuit against a $9 million plan, which he did not identify. That lawsuit has since been withdrawn for reasons that are “unclear,” Mr. Kreps said.

On a panel titled “Has the focus on fees gone too far?” Philip Edwards, principal at consulting firm Curcio Webb LLC, argued the “silver lining” behind some of the fee lawsuits and fee compression is “the greater focus that has been brought to decision-making.”

“Plan sponsors need to be even more confident today than they were five or 10 years ago in terms of what they're deciding to include or not include in the plan,” Mr. Edwards said.

He urged plan executives to document their decision-making process and show that for each decision reached, multiple approaches were explored.

Speaking on the same panel, Anne F. Ackerley, managing director and head of the U.S. and Canada defined contribution group at BlackRock Inc., said plan sponsor attention should be on balancing costs and participant outcomes.

“Fees matter, they absolutely matter, but they're not the only thing that matters,” Ms. Ackerley said. “If we only focus on fees, and we drive everything into index investing, given where I think returns are going, (you) are not going to bridge the gap for our participants.”

Ms. Ackerley pointed to smart-beta investing as one way to help “bridge the gap” for participants in the predicted low-return environment. Incorporating smart beta into target-date strategies or white-label strategies can be a risk-controlled and cost-effective way to get more return, Ms. Ackerley said.

The focus on fees has not caused investment officials at MUFG Union Bank, N.A., to “back away from” offering actively managed options in the bank's retirement plan, said David Courchaine, director, total reward, speaking on the same panel as Ms. Ackerley and Mr. Edwards “In (MUFG's) core lineup there are definitely asset classes where active can add value,” Mr. Courchaine said. “It just comes down to ensuring that what we're paying is reasonable for what we're getting.”

Increasing longevity and the shift toward an aging workforce was another pervasive topic.

“We aren't very good yet at preparing for very long and distant futures,” said Laura L. Carstensen, founding director of the Stanford Center on Longevity in a keynote address. “You might think that getting an extra 30 years of life would make people happy. … But people aren't cheering. Individuals are concerned about their own aging and aging of their loved ones. Policymakers are concerned about the sustainability of programs put in place.”

Ms. Carstensen, who is also a professor of psychology and the Fairleigh S. Dickinson Jr. professor in public policy at Stanford University, pointed to a 2011 study by Bankers Life Center for a Secure Retirement that found 14% of middle-income baby boomers do not have any type of retirement account. Many people will be forced to work longer because they have not saved enough, she said.

And even for those who are saving, the predicted low-return environment could hold them back. With lower returns forecast for the next several years, “millennials might have to work 10 years more, maybe to 75, to make up for the returns they aren't getting,” BlackRock's Ms. Ackerley said.

To help improve millennial and other participants' retirement outcomes, Ms. Ackerley urged plan executives to explore strategies like securities lending and smart beta, and encourage employees to contribute more.

Also affecting some employees' ability to retire are health insurance costs. When older employees at automotive parts manufacturer DENSO International America were asked why they weren't retiring, many cited an inability to pay health-care costs, said Sherry Youngblood, project manager, North American retirement benefits, at DENSO, speaking on a panel about financial wellness programs.

Trying to bring some optimism to the keynote address, Ms. Carstensen said good health and functional independence is expected to last “well into their 70s and 80s for many people.” Ms. Carstensen said some people will continue to work because they are “functionally healthy.”

If people can work longer, however, will also be dependent on whether their employer “is set up to have all these people work longer,” Ms. Ackerley said.

Employers can benefit from an aging workforce as “emotional stability” and knowledge appear to improve with age, Ms. Carstensen said. “When you think of this growing population of older people, keep in mind that this growing body is also better able to do some things than younger people are unable to do,” she said.

Some workplaces have already seen a change with some employees — particularly, women — working longer, Ms. Carstensen said. Stanford's Center on Longevity projects that 35% of men and 28% of women age 65 to 75 will be working in 2020.

To communicate effectively with a multigenerational workforce, plan sponsors need look past the stereotypes associated with older and younger generations, said Vlad Gyster, CEO and founder of communications and technology company Airbo, on the panel “Participant engagement for a multigenerational workforce.

Companies use Airbo's website to communicate with employees through short text, images and games.

Fujifilm Holdings Corp. used Airbo's platform to educate employees on its financial wellness, retirement and other programs, and found that employees of all ages, not just millennials, were using Airbo.

Of the more than 85% Fujifilm employees who used the technology, 96% also reported increased appreciation of the company's retirement and financial planning benefits. Among the top users was a 72-year-old.

“Does everyone want to be spoken (to) in a concise way? Yes,” Mr. Gyster said. “Millennials may be the burning platform that is motivating organizations to adapt new ways to communicate with employees, but actually, everybody benefits.”