Great opportunity exists for advisers in markets somewhat yet untapped. Take, for example, public or government defined contribution plans – 457 plans. While many of the larger or “mega” plans have been aware and utilizing the services of advisers, many of the smaller and middle size plans have not.
The topic was discussed in an Asset International (AI) and MassMutual-sponsored webinar called “Five Pieces You May Be Missing in the 457(b) Plan Puzzle.” The first important trend to note is the fact that governments offer more retirement plans than their industry counterparts. Overall, 90% of employers provide defined benefit (DB); defined contribution (DC) or hybrid cash plans to members according to data from AI.
Eric Wietsma, Senior Vice-President Investment Services with MassMutual, says there a few reasons for this trend. “It’s very common, particularly in the smaller area, to have multiple vendors. “So there could have been counting each vendor as a separate plan and historically that has been a way to provide choice to participants which is a common theme in the government market where sponsors have been paternalistic,” he adds.
Other things driving the numbers up, notes Wietsma, are driven by plan design. “In the government market, as DC options become more prevalent and employer money becomes a factor, in a government plan you would set up a companion plan which [in turn] increase the number of plans.” He adds that many government entities have multiple bargaining units, which could also be increasing the number of plans available to government workers.
The data also shows, for example, that nearly 91% of government plans provide catch-up contributions for participants 50 and older. Carl Steinhilber, National Non-Profit Practice Leader with MassMutual, says that number should be higher. “I think this equates to plans not having plan advisers working with them, helping them to make sure their plan is up to date,” he notes.
The proof point, adds Steinhilber, is that all of the so-called “mega” plans offer this feature, alluding to the fact that advisers and consultants have been doing more work on that end of the plan spectrum. “I just think that on the small end there is some work that advisers can do to help with the smaller plan providers.”
Wietsma agrees and adds that scale is not an issue. “What we have seen is a trend in the micro, small and mid space where we are getting Request for Proposals from plans that are looking to start to consolidate and involving an adviser.”
One last point for advisers – the data shows that about a third of sponsors in this market don’t review or rarely review their providers, opening up another avenue for advisers and consultants to plan an important role in government plans.
Joel Kranc is Director of Kranc Communications, focusing on business communications, content delivery and marketing strategies. He has written and worked in the retirement and institutional investment space for 17 years covering North American markets, large institutional pensions and the adviser community.
