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Defined Contribution

Ruling might give DOL, others time to focus on retirement income, experts say

Michael P. Kreps of Groom Law Group

The DOL and other groups might have the time and capacity to pick up work on retirement income strategies, now that a U.S. appellate court decision has vacated the fiduciary rule, industry experts said at Pensions & Investments' East Coast Defined Contribution Conference in Miami March 18-20.

In a keynote address on retirement legislation and policies, Michael P. Kreps, a principal at Groom Law Group, said he was doubtful that the Department of Labor would appeal a March 15 federal appeals court decision that vacated the fiduciary rule.

"It seems unlikely" that a department that has officials who have been skeptical of the rule since the beginning, and received a 2017 memorandum from President Donald Trump to analyze the rule's impact, would defend the rule "when they have a clear decision that undoes it all," Mr. Kreps said.

Potentially free from having to focus their time on the fiduciary rule, Department of Labor regulars might turn their attention to other issues, like lifetime income, instead, Mr. Kreps said.

Retirement income solutions already are receiving some attention from Congress, Mr. Kreps noted. Legislators have been working on a bipartisan retirement savings package that would facilitate the use of lifetime income strategies in DC plans, among other provisions.

Regardless of what happens to the fiduciary rule, it has "forced" a lot of plan executives and asset managers to think about strategies to help participants draw down their assets in retirement, said Nick Nefouse, managing director, head of DC investment and product strategy at BlackRock (BLK) Inc. (BLK), and co-head of the firm's Lifepath target-date series. There is recognition that if people do stay in plans, "the fiduciary responsibility of the plan sponsor would increase," Mr. Nefouse said, speaking on a panel on retirement readiness.

"From a fiduciary perspective, we are hearing from some plan sponsors who feel like if it's one (participant), if it's 100, if it's 1,000, they have exposure to folks who are staying in the plan and are going to need investment options and solutions that make sense for them," added Sue Walton, senior vice president and senior defined contribution strategist at American Funds from Capital Group.

Concerns on annuities

While some panelists argued in favor of income annuities, others said they have found people do not want annuities and only want to know how much money they can spend in retirement. Concerns around portability and fiduciary risk were cited by some as reasons plan executives have been hesitant to offer in-plan annuities.

Speaking on the same panel as Mr. Nefouse and Ms. Walton, Cheri Klyn, director of shared services at Vermeer Corp., said every year, the industrial and agricultural equipment maker prepares annual individual retirement readiness statements for members of its $300 million 401(k) plan.

In 2012, before the campaign started, Vermeer found only 15% of participants were "on track" to meet the retirement needs based on Social Security and 401(k) estimates, she said. "On track" meant participants had a 75% chance of success in reaching their targeted retirement income. By 2017, Vermeer reported that 55% were on track.

One element of Vermeer's retirement readiness campaign is to send letters to people age 55 and older comparing the costs and investments of keeping their assets in the plan when they retire vs. rolling over their balance into an independent retirement account. "Do you know your options?" is the theme of these educational letters.

Going digital

Leveraging digital and interactive tools to increase participant engagement was another popular topic at the conference.

At NEC Corp. of America, employees have access to a retirement readiness tool that shows them how adjustments to their deferral rate, planned retirement age, income replacement goal and other factors affect their projected levels of retirement income, said Linda Fonteneaux, benefits manager, total rewards, human resources.

The online tool also shows employees how they stack up with their peers in terms of retirement preparedness.

On a panel exploring techniques for engaging a diverse workforce, Jennifer Mausolf, communications and retirement strategies director at the Michigan Municipal Employees' Retirement System, said the system has a Facebook group where older employees and others can share tips or lessons they wish they had learned earlier in their careers about saving for retirement.

The retirement system also conducts Facebook Live question-and-answer sessions on topics such as cybersecurity, investments and Social Security, Ms. Mausolf said. Michigan Municipal administers about $1.8 billion in DC assets.

Since many of Hilton's employees do not work at desks, Mary Nell Billings, senior director of global retirement programs at Hilton Worldwide, said the company targets vendors that can reach employees via phone apps.

Speaking on the same panel as Ms. Billings and Ms. Mausolf, Megan Yost, engagement strategist at Benz Communications, said the employee benefits communications agency has had success engaging with retirement participants at technology companies with raffles and online quizzes that test their knowledge of their companies' retirement plan designs.

In addition to these tools, Ms. Yost said she still has seen a "real need for high-touch, one-on-one meetings" across all age groups and demographics.

While it might be challenging to bring that level of personal interaction to a large workforce, there are "opportunities to creatively deploy human resources" at large companies through webinars, videos and other techniques, said Rachel Weker, vice president of T. Rowe Price Retirement Plan Services Inc. and senior manager in investment platforms and services, speaking on a separate panel on interactive engagement tools.

Crucial points on fees

Conference panelists also discussed the importance of conducting regular fee reviews.

They noted it is crucial for sponsors to establish a clear, written policy — and then follow it and review it.

Three keys to sponsors' fee practices are "document, document, document," said Cynthia Zaleta, associate partner, retirement and investment, at Aon Hewitt.

"Consistent, ongoing review and market benchmarking" should be standard operating practices, she said.

Los Alamos National Laboratory follows several guidelines for assessing fees for its $1.4 billion 401(k) plan, explained Michelle Ryan, investment program manager, speaking on the same panel as Ms. Zaleta. The plan must evaluate investment manager fees every year, and it benchmarks all service providers at least once every five years.

Plan executives have reviewed fee strategies comparing asset-based fees vs. per-participant fees, concluding the latter is more equitable, she said.

Robert Steyer contributed to this story.