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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Categories
Practice Management
3 tools to help build your retirement plan practice
Andy Strandquist
Retirement Plan Counselor

2020 was an exceptionally challenging year for small businesses, with the pandemic’s impact varying dramatically across industries and sectors. For example, the restaurant chain that was closed for months had a very different experience from the doctor’s office that had been busier than usual.


Amid the disruption caused by COVID-19, plan sponsors may have prioritized the business at hand over their retirement plans. However, there are useful tools at every financial professional’s (FP’s) disposal to help sponsors look beyond current uncertainties and position their plans for future success. As the COVID situation gets more in control, these tools can help FPs keep their relationships in good shape and strengthen their competitive advantage. And NOW may be the perfect time for FPs to think about positioning retirement plans for the long term.


Here are the three tools you can use:


Tool #1
Good service: Essential to building relationships


Fees, investments and fiduciary risk management are standard fare in any meeting between an FP and plan sponsor. But good service can give FPs a real competitive advantage. As FPs face a growing competitive threat from state-sponsored retirement plans or other pooled plans, delivering valuable service to sponsor and participant will be a key differentiator. To do that,

  • Be available: Small business owners are time-constrained, focused on growing their businesses. They want prompt responses from and easy access to their recordkeepers and financial professionals. They don’t have time to wait on hold. Being available to sponsors also means:
  • Tailoring the message: Some businesses may have weathered the COVID storm and are ready to discuss revising or expanding the plan. Others are still hurting and may just be trying to keep the plan operating. These two groups will have different needs and questions.
  • Providing participant education: During volatile markets, such as the COVID-driven correction in early 2020, sponsors look to FPs to help discourage participants from impulsive decision-making. These moments provide an opportunity to teach participants about the importance of remaining invested, using materials like Capital Group’s Guide to Uncertain Markets. At the same time, FPs also need to be ready to discuss whether participants are investing too conservatively to build a big enough nest egg to generate sustainable income in retirement.
  • Put in face time (as soon as you are able): The pandemic showed that virtual meetings are an effective tool. But after COVID hopefully subsides, in-person meetings will still be valuable, given that a big part of communication is nonverbal and not perfectly captured on a computer camera.

Tool #2
Advocacy: Bring renewed attention to retirement plans


With the end of the COVID-19 crisis in sight, now may be an ideal time to bring small business owners’ attention back to the benefits and responsibilities of a strong retirement plan. This can be done by:

  • Holding regular review meetings around the same time each year: This will keep sponsors engaged and focused on their plans. FPs can help sponsors review plan fees, service and menus, as well as look for ways to boost participation engagement to grow plan assets.
  • Stressing the importance of a retirement plan: Remind sponsors that good retirement plans are key to attract and retain talented employees. As the economy improves, a good retirement plan can be a significant competitive advantage in the labor market.
  • Reminding sponsors of their commitment: The sponsor still needs to be doing the basic work to meet fiduciary obligations. Now may be a good time to review or streamline the investment menu. In addition, FPs may want to review the results of the plan’s target date funds. For example, how did the funds fare versus competitors in the sharp equity-market downturn seen in the first quarter of 2020? Did the funds provide the desired resilience?
  • Keeping them up to date: Inform sponsors about what’s on the horizon on the legislative and regulatory front. Now may be a good time to re-educate them on the previously approved Setting Every Community Up for Retirement Enhancement (SECURE) Act or preview similar legislation that Congress may consider this year.
  • Providing options to address more participants staying in plan: Educate and provide sponsors on their options regarding retirement income solutions and distribution flexibility.

Tool #3
Focus: Drive the conversation toward participant outcomes


At the end of the day, it’s all about participant outcomes. FPs can help sponsors focus on this goal.

  • Explore auto features: Discuss the advantages and challenges of auto-enrollment and auto-escalation, which have proven effective for increasing participation rates and contribution levels in a plan. Also discuss the potential benefit of an investment re-enrollment, which would move all participants’ plan assets into the plan’s default investment (usually a target date series) unless they opt out.
  • Stretch the employer match: Give employees incentives to save more by getting creative with the employee match. For example, a sponsor could match 50 cents on the dollar up to 3%, then dollar for dollar for another 3%.
  • Discuss retirement income: DC plans that are the sole retirement savings vehicle or those with older workers may be interested in learning about potential retirement income options.
  • Discuss costs: For recordkeeping arrangements, it may make sense for some plans to move from an asset-based pricing model to a fixed-priced model.
  • Review wellness initiatives: FPs may want to discuss other benefits that can work alongside a retirement plan to improve participants’ personal and financial wellness. For example, consider discussing the potential advantages of health savings accounts.

Conclusion


Looking beyond pandemic-related uncertainties, we believe there are reasons for optimism, including a potentially strong economic recovery. With this recovery in sight, financial professionals have an opportunity to help plan sponsors/business owners shift their attention back to building and maintaining strong retirement plans.



Andy Strandquist is a retirement plan counselor with 19 years of industry experience (as of 12/31/20). He holds a bachelor’s degree from Southern Methodist University as well as the Accredited Investment Fiduciary and Certified Investment Management Analyst designations.


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