My younger daughter just graduated college and my wife and I decided it’s time to sell the house. What a project that has turned into. Eighteen years of accumulated clutter. Lots to clean up. If I had more discipline, I’d be able to identify what is junk ahead of time and not let it accumulate. It occurred to me that this story is a lot like retirement plans.
A plan might choose a particular strategy, service provider, investment contract, benefit or feature and move forward with it. Two things then happen as time elapses:
- All of this “stuff” accumulates and there is likely an opportunity to “clean house” for provisions, strategies, providers, contracts benefits or features that are no longer used, needed or may not work anymore for one reason or another.
- If you accumulate too much, there are likely inefficiencies created that challenge the effective operation of the plan at a reasonable cost.
I took a look at the Plan Sponsor Council of America 403(b) Plan Surveys for the past few years and saw the percentage of respondents who use more than one provider has not changed much over that time.
I have to wonder about the opportunities for efficiency that still exist and whether plan sponsors and their financial advisors even realize that a step back with a holistic view could highlight ways to help improve the plan.
As a case in point, I recently had a chance to speak with counsel for a large 403(b) plan. His client had added various features over the years and had consolidated its number of vendors down to three.
The client complained that the plan had gone through a constant state of modernization since the effective date of the final 403(b) regulations, but they couldn’t seem to make it work correctly. Administrative errors happen, provisions get missed and participants don’t understand the benefits of the plan and how it works. In addition, they reiterated many times that all they should need to do is arrange payroll deductions and report hire and termination dates to the service provider.
The problem is the plan sponsor is holding on to an archaic “hands-off” attitude that simply doesn’t work, especially with the complexity of the plan. No wonder the current providers can’t make it function correctly. With a hands-off sponsor and no centralized responsibility, there’s no throat to choke, so to speak, to ensure a proactive strategy to make the plan effective or to take responsibility when something goes wrong.
I would hope in future conversations, this plan’s counsel will understand what is really going on. And better yet, will introduce a financial advisor knowledgeable about 403(b) plans to step in and pull the whole thing together.
By figuring out where efficiencies can be found and helping the plan sponsor implement them, the plan will exist on a solid foundation. One that can more effectively identify clutter before it starts accumulating.
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor® Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (Principal®), Des Moines, IA 50392.
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