What is Tales from the Trenches about?
In short, it is about you. Our readers – institutions, employers and other plan sponsors – have had their share of challenges, given the tumultuous market environment and shifting regulatory requirements. It is comforting to know your peers face these challenges and, more importantly, it is useful to know what approach they took and the final result.
If you have stories you’d like to share, please email us at email@example.com
For our first Tales from the Trenches article, we talked with William Hughes, who acts as an administrator for a small 401(k) plan in Florida. William explains why the plan changed service providers 3 times in the past 8 years, and he talks about changing the plan structure to improve spending predictability.
Confero Magazine: Briefly tell us about you, your role at the company, and your role with regards to your company’s retirement plan.
William Hughes: I’m the administrator of an 11-provider, 3-location OB/GYN office. We have 65 employees in a 401(k) plan that is a safe harbor, dollar-for-dollar match, on the contributions at 4% on the employees’ annual income. I am the administrator of the plan. Also, we have 2 trustees who are shareholders of the corporation that own the medical practice.
CM: Please describe some of the key challenges that you find regarding your retirement plan. What were your “pain points”? Was this pain felt by participants are you on the committee? What do you think the participants most want to see changed regarding the plan?
WH: We’ve always looked at trying to set the plan, of course, with the least expenses within the funds. It’s a mutual fund based platform, where there’s 17 to 20 mutual funds and retirement targeted age fund mixes. We’re trying to pick the ones that have the least expenses so employees can get more return without having to pay plan expenses.
The other thing is getting enough employee interest to where the plan doesn’t turn out to be top-heavy: the owners are putting in so much more than the employees are, that the employers either have to return contributions or they can’t contribute as much as they would like to, per law, because there is not enough employee participation.
I think the other level of challenge is having someone locally, who is able to come in and get the employees involved, explain to them the importance of the retirement plan, and what the ultimate goal is in saving for your retirement.
CM: Please describe how you approached these challenges. What did you, or your team, ultimately do?
WH: One of the things is in the design of the plan to look at overall fund expenses to make sure each that in each category, whether it’s a large cap fund, or a small cap fund, developing markets – whatever it may be – that we’re looking at some of the more competitive funds that have some of the lower expense constants that perform well, but don’t cost too much more on the back end of their performance.
We had characteristically, or pretty traditionally the past 5 or 6 six years, had to put in an additional top heavy contribution because of the owners [contributions] in relation to the employee contributions. In this last year we moved to a safe harbor plan where we do still have a graded 6 year vesting, but we’ve gone to matching dollar-for-dollar on all employee contributions… It basically gets us into the area where if we’re contributing dollar-for-dollar, gets us in the safe harbor where we don’t have to do the discriminatory testing in contributions that we did in the past. We’re still probably contributing as much, maybe if not a little bit more than we were in the past, but we’re not having to pay to get all of the testing done and having the year-end uncertainty of- “Do we have to pay here? Do we not have to pay?” We kind of pay a little all along at that point.
“ I know it’s not always possible, because when turnover happens you just handle things as well as you can, but I think there’s maybe some continuity that’s not going on....”
CM: You changed relationships 3 times in a short time frame (8 years). Is there something you wish the TPA or recordkeeper had done differently that might have made their model more attractive? Do you have any advice for the professionals when it comes to understanding your business, or the issues that made you move your business elsewhere?
WH: We had a local broker with, I think the company was Legg Mason, and they got bought out by Smith Barney. They reorganized and no one was in this area handling the account locally. It was going to be 70 miles away. So, we moved to someone locally, [but] he actually got promoted and moved to another area. So then we were left without the relationship. It’s not been a service issue as much as it’s been reorganization and mobility of people in that industry.
I know it’s not always possible, because when turnover happens you just handle things as well as you can, but I think there’s maybe some continuity that’s not going on: when someone knows they are not either going to be local or going to have the same service providers for clients, there’s a smooth and readily communicated succession plan. Basically, it is, we just find out somebody else has moved and three months later we may meet the new guy, we may not. I think looking at a little better customer service – there again I know these spots don’t fill in overnight. Like in a lot of things - just good customer service and communication.
CM: With the benefit of retrospect, is there anything you wish you had done differently? Do you have any advice you’d like to share with a peer going through a similar change?
WH: I wish I didn’t have to be quite so proactive to get our service providers in to meet and educate the employees, and I wish I could be more proactive in getting my employees interested in meeting with them. It’s one of those things - we should meet at least quarterly, at least every 6 months, but I don’t feel enough effort is made on the other end, or maybe by my employees to get those meetings to be meaningful and useful to both sides.
CM: What was the end result? Did everything get resolved satisfactorily? Are there any other trustees or fiduciaries on that account and are they satisfied as well?
WH: It is satisfactory. We do have good participation. I think it’s like so many other things in the workforce. Everybody is busy and they have things to do before work or after work. We battle here with single moms and a lot of responsibilities outside of the office. I don’t think it’s particular just to the retirement plan, but just getting people keyed into some priorities on things that really are ultimately important and really will make a difference in quality of life down the road. I think we have, without getting a soap-box maybe, we’re more tuned in to immediate gratification than we are to suffering a little now, for some gratification later.
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