I recently moved into a new home, and while I won’t tell you exactly how many lightbulbs this house requires, let’s just say that the previous owner liked it bright. So bright in fact that I was concerned about how high the electric bill was going to be.
Thankfully, modern technology has given us LEDs. The light is better quality, the energy use can be significantly less and they don’t heat up like other bulbs. Modernization has made my life more efficient, and therefore better.
Also see: “20 companies with the best benefits.”
This got me thinking about modernization in general, and of course we see it everywhere. For example, what are financial advisers spending their time on today? Modernization.
There are three key areas I’ve seen advisers focusing on with nonprofit organizations: plan sponsor control, governance and plan design features.
1) Plan sponsor control
Sponsor control is a big deal, especially among 403(b) plans. You can’t even get to effective governance or plan design if the sponsor doesn’t have control over the plan.
Lack of control is still relatively common among 403(b) plans that have either individual annuities issued to participants or “quasi group annuities,” where there is a group annuity but all control and contract rights belong to participants.
Advisers are looking for providers and contract structures that allow for fiduciary control so changes can be implemented that will enhance the plan.
Advisers are also spending a great deal of time establishing and fine tuning the governance of the plan. While most are familiar with basic governance such as an investment policy statement, additional policies around plan administration, fees and education are becoming commonplace.
Investment policies and reviews are focusing not only on whether the investment options are meeting their objectives, but also on the number of investment options available. Many 403(b) plans still have far too many investment options for participants to effectively make decisions. Education is a focus since it is critical that participants make informed decisions, and plan sponsors are looking for consistency of messaging to participants.
3) Plan design features
The third area is plan design. Over the past year or so, we’ve seen greater interest in automatic enrollment, QDIAs and auto-escalation as advisers have been meeting with nonprofit plan sponsors.
But we’ve found nonprofit organizations that are usually paternalistic toward their employees have been reluctant to adopt automated plan provisions for fear of a perception they’re “telling participants what to do.”
Once they understand how these features work and how they benefit employees, the adoption rate increases. According to the Plan Sponsor Council of America 2016 403(b) Plan Survey, approximately 19% of 403(b) plans had adopted automated plan provisions. Similarly at Principal, we saw nonprofit plans with automatic features increase by 17% in 2016.
While we’re making progress, the new modern age of nonprofit retirement plans is arriving and there are still many plans that need help. Advisers need to help them see the light.
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