Case Study #6: Engineering Firm Needed Investment & Benchmarking Expertise

An engineering firm with a savvy investor employee base needed guidance. They were concerned with:

  • Understanding what else was available in the marketplace
  • Whether they were getting good value for the money spent
  • How to make sure they were following a good due diligence process with choosing and monitoring the investments
  • Overall plan performance

The same recordkeeper had been providing services for the plan for roughly 15 years, including providing many of the investments. The committee was concerned that the slant towards proprietary offerings may not be the best options for their plan and that they may not be getting services in line with the fees they were paying. In fact, a third party online rating service showed that the fees were very high. Participants sometimes complained in education meetings that they didn’t like the investment offerings. We came in to provide investment support and benchmarking services.

How we developed the solution:

Benchmarking

First, we gathered a lot of data. Scouring their plan documents and statements, we took inventory of what kinds of services were available, being offered, actually used, and performed some deep digging on the fees and how they were structured. We spent significant time on the qualitative aspects of what services the plan sponsor and the participants were using, and their satisfaction level. We asked about their overall company culture and whether they felt it was their responsibility to get their employees to retirement or just provide a vehicle to do so. Then we did two things: we engaged an outside benchmarking service with current data direct from other plans similar in size and within the same field of the plan to make sure that the results would be relevant and statistically insightful, and we polled other recordkeepers about the types of services they would make available to a plan of this sort. (We can’t begin to stress how important it is to have up-to-date data less than 2 years old from reliable sources of plans and companies that are similar!!!)

We were able to obtain data from a sizable pool of comparison plans and recordkeepers through the benchmarking report and our “secret shopper” survey. The benchmarking report showed that the administrative fees of the plan were average, the investments were over the average, and the total of the plan was slightly above average as a result. The data that stood out and required perspective were the types of services and plan design that this plan had versus others and what was generally available. This plan had several things that affected the price such as automatic enrollment with eligibility tracking services, a custom designed plan document, and one-on-one education meetings. We were easily able to spot which areas could be improved and helped the committee take inventory of other features the broad market had to offer, such as guaranteed withdrawal benefits, different online resources, managed accounts, and others. We delivered a comprehensive report complete with our suggested next actions. The end result was we were able to negotiate with their current provider for better pricing, increased services in line with what they were paying, and drove factors to help with an overall positive outcome on the plan performance. (The other result was a committee full of savvy shoppers ready to tell every vendor that called why they weren’t looking to change!)

Investment Review

We examined the investment lineup. The plan had a long history and participants were just as likely to use an invest-for-me strategy as they were to choose their own portfolio of investments. We started down our checklist of their selection and monitoring process and gathered data about their employees. In speaking with the committee, two goals emerged: diversity of options but within a streamlined amount of options. In other words, the employees could be easily overwhelmed with too many to choose from but needed a diverse lineup to cover the wide spectrum of ages and types of investors in their employee base. They also needed the ability for employees to go outside of what the committee oversaw on the investment menu, and it fit their company culture to allow them to do so.

We also needed to streamline the overall plan investment strategy and get consensus on approach. This particular investment lineup had separate account options where the recordkeeper would act as an ERISA 3(38) investment manager, appointing registered investment advisors to invest a pool of money to a certain criteria and standard.  While the committee felt comfortable with the approach, they were unsure that the performance supported the efforts or that the options that were offered on this program actually fit their employees’ needs.  Long discussions ensued. 

In conclusion, we assisted in combing through all the options they had on their platform, adding to and streamlining their menu to meet their fleshed-out criteria in their investment policy statement, and continue to provide them with a monitoring program. (I know, that’s short and non-specific for a case study, but it’s that way so our compliance folks don’t get nervous that this could be misconstrued as advice to whoever is reading this when we know nothing about them.)

It’s important to note that this committee is very hands-on and very thoughtful. One of our primary responsibilities as their Planologist is to keep them informed of upcoming changes – both regulatory and features/benefits in the marketplace – and how to navigate possible outcomes or unintended consequences of implementing anything new in order for them to make educated and relevant decisions.