Don’t be afraid to change your DC plan… learn from companies that do it right
So you want to change your DC investment lineup, switch recordkeepers or adjust plan member fees…but you’re worried about how your plan members will react. Going about any change the wrong way can lead to unmet expectations and unhappy members.
But that doesn’t mean plan sponsors should be afraid to make changes. “Done well, they will enhance the membership’s appreciation for the benefit and help build loyalty,” says Janice Holman, a principal with Eckler.
What should you do? Holman offers these three tips.
1. Start early and allocate the right internal/external resources – Make sure you have sufficient resources to handle the tasks involved, such as reviewing contracts, updating plan documentation (e.g., the plan’s statement of investment policies and procedures), adjusting HR systems, creating and delivering a member communication strategy, and auditing the implementation process.
2. Define objectives – That’s the first step in a successful implementation, says Holman. If you need members to take action—such as re-enrolling in the plan—to achieve those objectives, she suggests focusing on member engagement and putting strong defaults in place for those you just can’t engage.
3. Communicate well – How you communicate a change goes a long way toward getting plan members on board— whether or not they fundamentally agree with it. “Be clear, honest and direct with the members about what the change means to them and what action is required,” Holman advises.
This all sounds good in theory, but how does it work in practice?
Learn from DC plan sponsors on our Top 50 list and get it right.
UBC Faculty Pension Plan:
How to outsource DC recordkeeping and keep members happy
The University of British Columbia (UBC) has a long and prestigious history—including its faculty pension plan (No. 3), which has been serving members since 1967. The plan had been administered in-house since its inception, so moving the recordkeeping to an external service provider was a tough decision.
But it was the right decision, says Cheryl Neighbour, executive director, operations, for the UBC Faculty Pension Plan (FPP).
“We had done a study and found that for us to bring our systems up to date with what was available in the marketplace would have cost a lot of money and required more resources in the office. And we decided that the time had come for us to use the market tools that were available,” she explains. “Also, the fact that we could transfer the risk of running the plan to a provider made a lot of sense to us.”
So, in 2014, the plan’s board of trustees issued a request for proposal (RFP) for DC recordkeeping services, including a website for members to access their accounts. (The trustees wanted to keep the plan administration and member communications in-house.)
Customer service and system capability were important factors in choosing a provider, says Neighbour—especially with the in-plan retirement options available to members. Unlike many DC plans, the UBC FPP has been offering lifetime income fund and retirement income fund payment options directly from the plan since 2004, when B.C. legislation first allowed it. The plan also offers a variable annuity option, which was implemented in 1986.
“The main criteria were making sure that they understood who our members were and what services were required, and that their systems were capable of handling our plan,” she explains. “That was quite a big priority for us: to make sure there was no decrease in quality of service.”
The RFP process narrowed the providers down to three, and the new recordkeeper, Sun Life Financial, was selected in September 2014. The new arrangement came into effect on June 23, 2015.
Getting Members on Board
With 3,400 active members, 1,500 deferred members and 900 retirees, it was critical to make sure everyone understood the change and the rationale behind it. “It was quite an iterative process,” says Neighbour. “We started as soon as we’d made the decision…to let them know that this change was going to be happening.”
Both the FPP trustees and the recordkeeper sent out letters and emails to notify plan members. A video from the chair of the board of trustees and a list of frequently asked questions were posted on the FPP website. And the recordkeeper was introduced at the FPP annual pension forum meeting in May this year, which included a demo of the new plan member website.
“We basically just bombarded our members with as much information as we could provide,” says Neighbour.
Of course, the transition wasn’t without its hiccups. The FPP’s project manager had to take a leave of absence shortly after the project started. And moving from an in-house to an external system was more challenging than anticipated, since some of the existing administrative tools—for example, a retirement estimator—weren’t transferable and had to be custom built by the new recordkeeper, Neighbour explains.
Some plan members were concerned about potential fee increases or losing the personal touch. “They were worried they would no longer get the service from our office they are used to receiving,” she adds.
But, overall, Neighbour says the plan reconciliation and transition went smoothly, noting members were excited about the new website and the fact that the plan would now have daily instead of monthly valuations.
Her advice for other plan sponsors considering a similar change? Make sure the provider can customize its services to meet your plan’s specific needs.
“We didn’t want to be slotted into a vanilla-type arrangement where we couldn’t make changes we needed to make,” says Neighbour. “That’s the most important thing: to make sure the service provider understands who you are and is willing to work with you in the way that you need to work, to make sure your members are serviced properly.”
How to reduce fees and get a better deal for your plan members
The price of gas is rising. Your grocery bill gets bigger every month. Heading south for a little R&R? It’ll cost you. But, at the Niagara Casinos pension plan (No. 45), fees have actually gone down.
It all started two years ago, when Niagara Casinos began to question the management fees its 3,625 members were paying. The fund lineup includes target-date funds (TDFs) as well as a build-your-own platform of 13 funds, from guaranteed income to foreign equity.
“We were looking for creative ways to get money back into the pockets of our employees,” explains Colleen Falco, director, HR services, with Niagara Casinos, adding it was particularly important since they were undergoing a wage freeze at that time.
In July 2013, Niagara Casinos worked with its recordkeeper to bring fees down, ultimately reducing management fees by 15 basis points per fund.
To help plan members understand the impact, Niagara Casinos implemented a branded communications campaign around the theme of More money in your pocket. The focus was on how much members would save with the reduced fees over time.
The campaign used a variety of media, including a direct home mailing; a write-up in the monthly Connections employee newsletter (available in both hard copy and digital formats); banners on the company intranet; digital signage back-of-house at the casino; and information in the pre-shift document (distributed to employees once a week with updates on current events, promotions, departmental announcements and policy changes at work).
Niagara Casinos also announced the change on social media via its Facebook page, which reaches about a third of the DC plan population, and Twitter. It made sure there was consistent messaging on the recordkeeper’s platform, too.
Even More Money in Your Pocket
Lower fees, happier plan members…mission accomplished, right? Not quite.
“During our next plan operation review, our consultant came back and said, ‘You’re still paying way too much,’” says Falco. So, in July 2014, Niagara Casinos and its investment consultant initiated a second round of fee negotiations with the recordkeeper.
Round No. 2 brought fees down by a further 15 basis points per fund. Putting both reductions together translates to an average annual permember savings of $150 a year.
The casino also switched out of one of its existing investment options, a U.S. market segregated fund, and into another manager’s U.S. equity index segregated fund, since the new fund has better tax implications for the plan members.
The era that we’re in, everybody’s really looking at cost containment as much as possible,” Falco explains. “Not only that, but you’ve got the CAPSA Guidelines, so you have an obligation to ensure the fees are competitive. And, as soon as you put the fees out in the open [on plan statements], your members are—by virtue of seeing [them]— more educated.”
It also makes it easier for members to compare the plan fees with what they’re paying on their personal investments, she adds.
When it’s time to negotiate fees, Falco advises other DC plan sponsors to trust their consultants and bring them to the table.
“The consultants are up on what the fees are really like right now,” she says. “Rely on them to review your plan and ensure the fees are competitive. That’s the lesson learned there— because we wouldn’t have had to do it twice!”
Get a PDF of this article, which includes the charts of the Top 50 plans.