The evolution of retirement plan design and menus

Plan design and evolution

Effective plan design is essential to the success of plan sponsors and participants, and it’s not a one size fits all answer. As an advisor, presenting plan sponsors with options that can ultimately help move participants into an area where they can save and feel prepared for retirement is of utmost importance. To discuss ongoing changes affecting plan sponsors we spoke with Megan Smith, Senior Vice President of Wealth Management at UBS Financial Services, Tim Irvin, Senior Financial Advisor at CAPTRUST, and Sean Kelly, financial advisor and Vice President at Heffernan Financial Services.

Key takeaways

1. Integrating wealth and retirement advisory services offers a holistic approach that enhances client relationships and provides new growth opportunities for advisory practices.
2. Specialization and clear definition of advisory roles are crucial for effectively managing both retirement plans and wealth management services, meeting diverse participant needs across different life stages.
3. The future of retirement advisory will require leveraging new tools, technology and financial wellness strategies to stay competitive in a highly dynamic market.

In terms of changes over the past few years, many plan sponsors are working with participants to implement more integrated financial wellness programs, building beyond just the mechanics of retirement savings and into education and best practices. In turn, employees are looking to their employers for that advice, “we’re having a lot more conversations around budgeting, taking control of finances and how that plays into the 401(k) plan or retirement plan” says Megan. “I love having conversations where you pull up a participant’s balance, and because of basic features in the plan, they realize how much money they have been able to save. Now in the next 10 years the hope is we will be seeing those auto features work and participants might have bigger balances than they anticipated, which is always one of my favorite surprises that I get to deliver.”

Sean builds on this idea of how he can fulfill the ultimate goal of helping people save for retirement by continuously building his own knowledge and being there for plan sponsors, as “Preparing participants for retirement falls on the employer, but the employer isn’t in the business of helping people retire. They’re in the business of making whatever machine they make or providing whatever service they provide. That is where we, as advisors, can step in and help.” He reinforces the idea of being an extension of the team, rather than an outsider saying, “We must understand how people work, tick, think, how they feel, what their love language is, and more. Being integrated like that allows us to see how plan sponsors’ roles and responsibilities are changing, as well as our role, the record keepers and vendors. That puts us at that nexus to see how all of this is a dynamic flux state and allows us to be the most helpful.”

At CAPTRUST, Tim sees three main issues impacting plan sponsors, namely regulation, legislation and litigation. With legislation being particularly top of mind, saying, “Sponsors are trying to unpack 90 plus provisions of SECURE Act 2.0, a mix of optional and mandatory dating out to 2035. It is our job to understand how that all works. We need to help explain what the timeline looks like, what provisions are mandatory, optional, beneficial, while also understanding how this works and where our plan sponsors are.” Ultimately, the goal is to present a balanced investment menu that allows participants to have a sense of certainty and allows people to see through their working careers and into retirement, as he adds, “These committees put so much work into being thoughtful in terms of negotiation, structure, fees, and menu construction of investments, advice offerings, and financial wellness. All those things can still be available to participants if they stay in the plan and don’t roll their money out."

Implementing lifetime income

Lifetime income is familiar to participants in several forms, whether it be through an old-school pension, Social Security or annuities. Though seemingly complex, lifetime income is not an alien concept, as Sean sees it, we have almost come “full circle”, in the sense that the industry started with pension plans, as he says “I haven’t heard anything negative when I’ve been talking about lifetime income with plan sponsors. The feedback is that they like the concept. I’ve been presenting it to the plan sponsors, and the idea of giving employees as they retire the peace of mind that they can pay their bills1 and the rest of the savings that are not needed can be invested for growth, that makes sense.”

Megan also sees this as a lengthy conversation with plan sponsors and believes in educating sponsors and participants. However, it varies by plan sponsor: “The more paternalistic plan sponsors are really excited about being able to take that next step on turning a retirement plan into something comprehensive, while more conservative plan sponsors may be concerned with litigation risk.” But those conversations are ongoing, as Megan adds “It takes seven or eight conversations to get the comfort level where clients understand the product offering, the legislation, the regulatory landscape, and how it can really impact their participants.”

Similarly, Tim comments on the “curiosity” of clients, saying, “There are definitely early adopters who have evaluated these products and said, based on their plan, ‘We want to be able to offer something that provides some level of certainty.’ It all goes back to education. Clients who do not understand the product offerings, and the benefits they can provide, tend to be more hesitant.” And it is the role of advisors to help educate and walk through that process, as Tim says “There are some plan sponsors that want to see some benchmarking first, and they want to see the products in market. They’re being very thorough in their analysis of how these would work.”

How advice is changing

When it comes to the future of retirement, Tim believes increased complexity will be a big driver of the plan sponsor and advisor relationship, “Increased regulation, the threat of litigation, and legislation are all going to drive the value of working with an advisor in our space.” Plan sponsors may not have the time to understand the intricacies of retirement regulation and legislation, so it is up to advisors to understand this complexity, “we want to make sure that we are integrated into every aspect of reviewing their retirement plans, so they have someone help them understand how this could benefit the employees in their plan.”

Maintaining that human connection amid the rise of AI is a priority for Sean too, as, “it is something that I think about; how that’s going to affect our industry. But again, after talking to participants, I believe there’s no way that artificial intelligence can do anything even close to what we are doing.” Megan agrees, stating, “I think that individual experience and personalization that you get from having a trusted conversation can’t be replaced by a computer. You can use a computer to pick good funds, but you can’t use a computer to build out that trusted interaction. So, I think advisors and services being delivered, not just at a plan sponsor level, but at a participant level, are going to be ever more important.”

Sean is focused on his drivers for success and his basic mission, adding, “I’m here to help employees be on track to replace income and feel comfortable, so they’re not stressed. They can check retirement off because they have a plan, and know what they’re doing.” This is furthered through the thought of being an extension of the team, not just an advisor: “I want to help participants understand the landscape and make the best decisions. My goal in all of my interactions is to be a solid advocate and resource for our clients and participants so they feel comfortable and confident in the decisions they’re making.”

For Megan, that access to a financial advisor and building an individualized and custom future is the focus, “Our team specifically is built out where we have our communications and meeting schedules at the plan sponsor level, then we have an entire segment of our team that focuses on having individual conversations at a participant level,” says Megan. “Whether that’s through group meetings, one on one meetings, webinars, etc., we have a lot of research and experience to be the resource for other advisors here at the firm.”

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