In a previous article, “A handful of trends are transforming Defined Contribution Investment Only (DCIO), one trend we identified was the evolving focus away from a “low costs above all” priority and toward an appreciation of the value and advice that a retirement plan professional can offer plan sponsors.
Before we discuss the many important ways a retirement plan professional (RPP) can assist plan sponsors, it’s crucial to first draw a distinction between financial professionals for whom retirement plans are a peripheral part of their business and those financial professionals for whom retirement plans are their primary, and in many cases, only focus.
Drawing this distinction is necessary because much of the value that a retirement plan professional can offer a plan sponsor comes from the deep knowledge of, and experience with, plan sponsor needs, plan participants’ challenges and behaviors, the laws and regulations governing qualified retirement plans, industry trends, and new and potential legislation.
The retirement plan professional brings value to plan sponsors in a number of critical ways, including:
- Guiding the plan sponsor through Employee Retirement Income Security Act (ERISA) requirements, providing tools such as checklists, forms, and education modules to help ensure that prudent skill and care requirements for plan operation are satisfied.
- Assisting with plan design to help a plan sponsor maintain its qualified status, achieve its plan objectives, and maximize the impact of its benefit dollars.
- Providing the support necessary to help an organization meet its fiduciary duties. This support, among other things, includes providing guidance or assistance in the following areas:
- Formulating an investment policy statement for the plan.
- Selection and monitoring of the plan’s investments and fund options.
- Educating plan sponsors on their fiduciary responsibilities.
- Assisting with documentation of meetings and discussions.
A 2019 survey1 of plan sponsors found that more than 93% of plan sponsors work with an advisor—an all-time high for a study in its 10th year. The top two reasons for hiring an advisor were (a) to understand how well the plan is working and how to improve it; and (b) to get help managing the plan. This underscores the value of such professionals servicing the retirement plan community.
Moreover, according to research conducted by Each Enterprise2 – a firm serving the institutional retirement plan market – 75% of plan sponsors working with an advisor exclusively devoted to retirement plans rated their advisor “outstanding” for periodic investment reviews and service provider due diligence. Further, 71% rated their advisor “outstanding” on plan design recommendations, and 77% said their advisor was “outstanding” for monitoring the fulfillment of services by their retirement services provider.
With the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act3, the value of retirement plan professionals will be further validated as they guide plan sponsors through the new safe harbor for adding annuity features to plans prudently, the new requirement for furnishing lifetime income disclosures to participants annually, and how plan sponsors can avoid the higher penalties for failing to file their required forms and notices in a timely manner.
Retirement plans is not a part-time activity, and we believe plan sponsors seeking help on their retirement plan should look to work with a retirement plan professional that’s dedicated and focused on helping plan sponsors holistically with a range of services. Specialized advice from a retirement plan professional has never been more valuable in our view.
1 Financial Advisor Mag, “93% Of Retirement Plan Sponsors, A Record, Now Work With Advisors,” 2019. Source cites Fidelity’s 10th edition of its Plan Sponsor Attitudes Study for survey results.
2 Each Enterprise, “The Value of a Professional Retirement Plan Advisor,” 2014. We believe this information remains current and relevant. The survey results contain the opinions of the respondents and not necessarily those of BNY Mellon.
3 The Setting Every Community Up for Retirement Enhancement (SECURE) Act: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf
Important Information for BNY Mellon Custom Target Date BuilderSM
General. The Custom Target Date Builder is designed to help financial professionals assess how custom target date portfolio models may be built for their defined contribution plan clients. Unlike a target date fund product that invests in a fixed set of funds that do not vary by plan, a custom target date portfolio model uses the actual fund options included in a plan’s particular investment menu. This online tool may be used to create hypothetical custom target date models that are comprised of portfolio allocations for plan participants with different target retirement ages based on a proposed plan menu that you select for the plan. The proposed fund menu must meet certain asset class requirements, and at least two BNY Mellon fund options must be included. You will also be asked to choose from 5 different levels of risk for the model’s glidepath.
Powered by Wilshire. Based on this information, hypothetical custom target date portfolio models will be generated using the glidepath methodology of Wilshire Associates Incorporated (“Wilshire”). The Custom Target Date Builder is distributed by BNY Mellon Securities Corporation (“BNY Mellon”), a registered broker-dealer and a BNY Mellon Investment Management firm. Wilshire has been engaged by BNY Mellon to develop this online tool on its behalf. The Custom Target Date Builder does not provide investment advice, and BNY Mellon and Wilshire are not acting as fiduciaries under this online program. For purposes of determining the proposed fund menu, financial professionals may choose from the plan’s existing fund options or any other option from a universe of available funds. However, only those funds that have been pre-screened by Wilshire will be selected for asset allocation in its models. Additionally, fund options from Wilshire’s list of preferred funds that have passed its investment manager due diligence screens (the “Focus List”) generally will also be selected for asset allocation. The mere fact that a fund has been placed on Wilshire’s Focus List, or is otherwise selected for asset allocation under its models, should not serve as the primary basis for any plan investment decisions. Any fund (including its share class) that is available for selection for the proposed fund menu may or may not be accessible through the plan’s existing recordkeeping platform.
Educational Purpose. The hypothetical portfolio models that are generated by the Custom Target Date Builder, including any Focus List funds or any other funds selected for asset allocation under Wilshire’s models, are intended to be educational, and they are not tailored to the investment needs of any specific plan or plan investor. The funds or proposed funds that are included in the portfolio models represent just one way that a diversified portfolio may be constructed and not the only way to construct a diversified portfolio. Accordingly, the portfolio models including any funds selected for asset allocation should not serve as the primary basis for any plan investment decisions, and the portfolio models generated by this online tool should not be shared with plan participants. The provision of this hypothetical portfolio model information including any funds identified from the Focus List do not obligate Wilshire or BNY Mellon to provide any such information on a regular basis.
Portfolio Model Providers. The plan client/fiduciary does not have an agreement with Wilshire (unless they have engaged Wilshire to provide the “3(38) Investment Manager” Services for Model Portfolios). Plan fiduciaries should carefully research any potential fund or portfolio model before making an investment decision, and other funds or portfolio models with similar risk and return characteristics may be available. If a plan client wishes to implement any custom target date portfolios, Wilshire or another 3(38) portfolio model provider should be hired by the plan client. Unlike Wilshire, other 3(38) providers may be unable to implement custom portfolios unless they are also hired to select the plan menu. BNY Mellon’s Custom Target Date Builder does not provide fiduciary advice with respect to the construction of portfolio models, or the selection of 3(38) portfolio model providers for plans.
Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. Investors should contact a financial professional or visit im.bnymellon.com to obtain a prospectus, or summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.
All investments involve some level of risk, including loss of principal. Certain investments have specific or unique risks.
An investment in a target date strategy does not eliminate the need for an investor to determine whether a strategy is appropriate for their specific financial situation. An investment in a strategy is not guaranteed. Investors may experience losses, including losses near, at, or after the target date, and there is no guarantee that a strategy will provide adequate income at and through retirement.
Bank-maintained collective investment funds and their units are not registered under federal and state securities laws in reliance upon applicable exemptions. Because these funds are not mutual funds, they are governed by different regulations, restrictions and disclosure requirements. For example, these funds are subject to banking and tax regulations which, among other things, limit participation to certain eligible qualified retirement plans (stock bonus, retirement, pension and profit sharing accounts) and governmental plans.
The tool will require a minimum of two BNY Mellon Investment Management investment options be included among up to 18 strategy allocations in the target date portfolio. The use of the tool is subject to Wilshire’s User Agreement.
BNY Mellon and Wilshire Associates are not affiliated entities.
BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.
Not FDIC-Insured | No Bank Guarantee | May Lose Value