Making the case to change arrangements

Getting small-plan sponsors to change their plan design may be difficult, but it isn't impossible, as long as financial advisers are persistent and willing to do some legwork

Feb 10, 2013 @ 12:01 am

By Darla Mercado

Making the case for small-plan sponsors to change their plan design may be difficult, but it isn't impossible, as long as financial advisers are persistent and willing to do some legwork.

In a vacuum, the new fee disclosure rules may not be sufficient to encourage employers to revisit their arrangements, particularly because they won't understand what they are seeing. This means that there is an opportunity for advisers who can translate that information, benchmark it and do a side-by-side comparison of fees and services between the old arrangement and the new one.

“For people who want to explain why the alternative arrangement is better, it's really another version of demonstrating the value proposition,” said Bradford P. Campbell, an attorney with Drinker Biddle & Reath LLP. “Is one arrangement offering more value to the plan? What's the amount of time and effort involved in administering the plan? It could also go the other way: What are the trade-offs for the lower price?”

Paula Friedman, vice president of qualified plans at Encore401(k), creates spreadsheets breaking down the cost of the old arrangement versus the new one. She uses benchmarking data from The Advisor Lab LLC, which offers plan diagnostic tools.

Ms. Friedman also digs up information on the expenses providers collect through 12(b)-1 and subtransfer-agent fees — the costs the record keeper collects from the mutual funds that are offered on its platform.

“It can take a few hours, but once we've gone through that, the clients understand the value I'm trying to bring to the table,” she said. “I want to show them they have the best combination of service providers.”

Sometimes a discussion of tax savings is the way to get plan sponsors to listen, said Erik Evans, an adviser with GoalQueste LLC.

He has been trying to help a landscaping business migrate from a SIMPLE individual retirement plan to a 401(k), now that the plan sponsor has surpassed the 100-employee limit for SIMPLE plans.

A side-by-side comparison breaks down the benefits of tax credits for which the plan is eligible if it has a 401(k), as well as the benefits to employees of racking up more pretax savings: Workers can stash up to $17,500 before taxes in a 401(k), versus $12,000 in a SIMPLE IRA.

“It's hard to get employers to make decisions unless it's an obvious tax decision where they want to be ahead of the game because of tax savings,” Mr. Evans said.

dmercado@investmentnews.com Twitter: @darla_mercado

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