Retirement Planning
The art and science of plan reviews
Brandon Hansen
Retirement Plan Counselor
  • Use a combination of art and science to showcase the value you bring throughout the year when conducting annual plan reviews.
  • Focus on tying the numbers to your clients’ human needs and personalize the review process to address any challenges.
  • Leverage some of our strategic resources to make the annual plan review process as efficient and effective as possible.

Annual plan reviews are an essential part of supporting your plan sponsor clients and their participants. But they don’t have to be an overly onerous task to check off your New Year’s to-do list.

Instead, use a combination of art and science to showcase the value you bring throughout the year. One common pitfall financial professionals often experience is to focus the review on the science — plan costs and the funds by the numbers. Anyone can plug numbers into a computer and obtain an output. In many ways you, as the financial professional, bring the “art” by tying the numbers to your clients’ human needs.

Prepare for the meeting by looking through the eyes of the plan sponsor

Successful plan reviews start with thinking about a client’s point of view and the plan’s objectives. That enables you to personalize the review process, so the client feels any challenges have been understood and addressed.

As you head into planning for annual plan reviews, it’s worth taking a look back at the year that just ended. While the past several years were beset by challenges brought on by the pandemic, there now seems to be somewhat of a return to normalcy – whatever that means for your clients and their business. Still, some influences from the past few years may still exist. Consider:

  • Has the demographic of your client’s workforce changed? Have older employees retired and been replaced with new ones? If so, consider adding some automatic features to the plan.
  • How has participant behavior been affected, especially in light of 2022’s market decline? Have they largely stayed the course, or did they change investments or stop contributing altogether? Educating participants on the value of long-term investing may help them from panicking should future downturns occur. Analyzing non-participants is also important, so employers can take steps to get them to participate.
  • Have the goals of the plan changed? Has anything happened in the client’s business – positive or negative – that would affect those goals?

Use plan design to demonstrate your value

The answers to the questions above may help inform how you address plan needs by using the levers of thoughtful plan design.

Here are several plan design best practices you should consider discussing with your client if they are not already in place:

  • Auto-enrollment. Start new eligible employees – and maybe some long-standing employees – saving as early as possible.
  • Auto-escalation. If your clients are auto-enrolling, they should also consider auto-escalating, which systematically raises the participants’ contribution levels, usually annually, until they reach a predefined cap. This is a great way to address undersaving in retirement plans since the contribution comes before the paycheck and may provide participants often-needed discipline.
  • Investment re-enrollment. The more than a decade-long equity bull market has benefited many participants’ retirement balances. But there may be participants who missed out by not being invested in appropriate investments. An investment re-enrollment, where participants are swept into a default investment (usually an age-appropriate target date fund) unless they opt out, is a great tool to do just that.

Address the three types of retirement plan investors

Your clients’ employees are not all the same, and neither are their investing styles. That’s why the core investment menu should be evaluated from the standpoint of how it serves the needs of what I consider the three different types of retirement plan investors:

This graphic describes three types of investors: 1) The “do-it-myself” investor: Those who like to go it alone need a strong core investment menu. But avoid giving them a long list of Morningstar style box checks. Too much choice can be overwhelming. Participants typically choose only a few funds, so offer a broad, objective investment menu. 2) The “do-it-for-me” investor: This type of investor doesn’t want to be bothered choosing their own investments and would benefit from having a thoughtfully selected qualified default investment alternative (QDIA), usually a target date fund. 3) The “do-it-with-me” investor: These investors like to have a bit of guidance. Some plans offer personal investment services to help them make choices, while others offer online tools or a combination of both.

A common investor is, of course, the “do-it-for-me” variety. That’s a big reason why the selection of a QDIA is arguably the most important investment decision a plan sponsor makes. The ease and simplicity of target date funds (TDFs) makes them good potential solutions for the “do-it-for-me” investors. But the diverse nature of TDFs makes them difficult to compare across different managers’ series. There are tools that can help, such as Target Date ProView, which uses Morningstar data to objectively compare series.

About those costs

You don’t want to make the conversation all about costs, but you can focus on fees relative to the value of services received and the expected benefits of any additional fees incurred. While lower fees make sense, you can add value by determining whether the current fee structure meets your client’s specific needs and objectives.

Here are some cost-related questions you might ask:

  • Has the plan undergone any changes such as asset growth or sponsor goals?
  • Can any costs be lowered or negotiated?
  • Would a different plan solution or cost structure make sense?
  • Would the plan benefit from a share class change?
  • And what services could the sponsor add that might improve the “health” of the plan?

Strategic resources

There is a lot to cover during annual plan reviews, but we offer the following resources that may make the process as efficient and effective as possible:

Reach out to me or your American Funds representative for assistance with any of these resources. 

Brandon Hansen is a retirement plan counselor with 23 years of investment industry experience (as of 12/31/2023). He holds a bachelor’s degree in business management from Nebraska Wesleyan University. 

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