My youngest daughter just graduated college and my wife and I decided it’s time to sell the house. What a project that has turned into! That’s a lot of cleaning up. Eighteen years of accumulated clutter. It’s all stuff that my wife or I would look at today and want to keep; but facing the prospect of moving houses, we realize it isn’t something we need, don’t use, and isn’t worth moving. If I had more discipline, I’d be able to identify what is effectively junk ahead of time and not let it accumulate. It occurred to me that this is a lot like retirement plans.
A plan might choose a particular strategy, service provider, investment contract, benefit, or feature, then move forward with it. Two things then happen as time elapses. First, all of this “stuff” accumulates, and there is likely an opportunity to “clean house” for provisions, strategies, providers, contracts benefits or features that are no longer used, needed, or may not work anymore for one reason or another. Second, if you accumulate too much, there are likely inefficiencies created that challenge the effective operation of the plan at a reasonable cost.
I took a look at the Plan Sponsor Council of America 403(b) Plan Surveys for the past few years and saw the percentage of respondents that use more than one provider has not changed much over that time. I have to wonder about the efficiency opportunities that still exist in that market space, and whether plan sponsors and their financial advisors even realize that a step back with a holistic view could potentially highlight opportunities to help improve the plan.
As a case in point, I had the opportunity to speak with counsel for a large 403(b) plan. His client had added various features over the years, and had consolidated its number of vendors down to three. The client complained that the plan has gone through a constant state of modernization since the effective date of the final 403(b) regulations, but they can’t seem to make it work correctly. Administrative errors happen, provisions get missed, and participants don’t understand the benefits of the plan and how it works. Add to that they reiterated several times all they should need to do is arrange payroll deductions and report hire and termination dates to the service provider.
The problem is the plan sponsor is holding on to an archaic “hands off” attitude that simply doesn’t work, especially with the complexity of the plan. No wonder the current providers can’t make it work correctly. With a hands-off sponsor and no centralized responsibility, there is no throat-to-choke, so to speak, to ensure a proactive strategy to making the plan effective, or to take responsibility when something goes wrong.
I would hope in future conversations, this plan’s counsel will understand what is really going on, and will introduce a financial advisor knowledgeable about 403(b) plans that can step in and pull the whole thing together by figuring out where the efficiencies can be found, and helping the plan sponsor to implement them. At that point, they can build a solid foundation for this new house, and one that can more effectively identify clutter before it starts accumulating.
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