This is a fictional case study intended to showcase the actions, advice and services that The Mahoney Group can provide defined contribution plans. Any similarity to actual organizations is entirely coincidental.
The sponsor of a $40 million defined contribution plan that served 385 employees came to us with concerns. They weren’t happy with how their plan was running. A Retirement Committee member recently read an article about litigation resulting from excessive 401(k) plan fees and the group realized that they didn’t know if they were overpaying fees and expenses.
When they read about the personal liability mentioned in the article they realized that they didn’t truly understand the risks associated with their fiduciary obligations. Above all, they wanted to make sure their loyal employees were making positive steps toward their retirement goals by participating in the plan.
The Committee brought in The Mahoney Group to address these concerns, and “clean up and fix the plan.” We rolled up our sleeves and went to work, inspecting every essential area from fiduciary governance, to investment management and selection, to employee education and engagement.
To gain a good initial understanding, we reviewed their Investment Policy Statement (IPS), analyzed their plan demographics and conducted fee benchmarking. We invested time with the current recordkeeper to understand what services and tools the plan was utilizing. To make fundamental changes to the design of the plan, we revised their IPS, education policy statement and communication strategy with the approval of their appropriate committees.
After the fee benchmarking was completed, we ran a RFI (Request for Information), collecting proposals from other recordkeepers to get an understanding of where the marketplace is for a plan like this. In the end, the Committee decided to retain the current recordkeeper, at a lower price point due to the competition, and work with us to ensure they are maximizing the services they have to offer their employees.
We identified and addressed the flaws we found. For instance, we saw that they had an incoherent investment menu that had over 100 choices, so we performed investment manager searches, conducted QDIA (qualified default investment alternative) due diligence, and streamlined and clarified the investment choices, again with our client’s approval. We also instituted a better communication process with their recordkeeper to keep our client better informed.
Making sure our client was meeting its fiduciary obligations was a major objective. In an effort to provide tighter fiduciary governance, we drafted a committee charter, put together reports on fiduciary responsibility, and implemented an education program for their board and committee members. We explained the roles and responsibilities under ERISA, and the importance and correct use of the Investment Policy Statement.
Educating their employees became another priority. After all, the best investment lineup in the world is futile if not used properly by participants. We provided information for their internal website, provided informative newsletters, conducted webinars, held one-on-one enrollment and education meetings and gave each employee our direct line and an invitation to call us with any questions or concerns they had with not just the plan, but any personal financial matters.
But as we have learned from decades of industry experience, employee education alone usually does not move the dial dramatically. The best way to improve key metrics such as participation rates, deferral rates and investment appropriateness is by considering strategies such as automatic enrollment, automatic deferral increase and default investments. An employee’s worst enemy is inertia. In fact, opt-out rates of less than 10% indicated that employees did need an extra nudge to make their next right decision.
To manage the plan, there are many things we do on a quarterly basis: Discuss any regulatory and legislative updates, discuss plan trends and market commentary, review adherence to the IPS, monitor and report on the performance of the investment menu, and document the fiduciary process through the meeting minutes. We then monitored the investment program on an ongoing basis to respond to market conditions or make necessary adjustments.
We plan and host employee education meetings annually. Then at least every three years, we evaluate the record-keeper and conduct due diligence, and provide updated fiduciary training to the board.
While these are services that other advisors can provide, we pride ourselves on our high-touch model and essential role as proactive plan consultants. We take ownership of vendor management and work with the recordkeeper to anticipate any problems. These may not be things that everyone does – but we do at The Mahoney Group.
This investment profile is hypothetical and not indicative of any specific situations or clients. It is presented only as an example and not intended as investment advice. There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss. Asset allocation and diversification do not ensure a profit or protect against a loss.