Initiative aims to help sponsors improve their defined contribution plans.
Allow me to describe a process for you. It is a multistep planning process. It includes establishing a client-advisor relationship, gathering data to establish goals and objectives, analyzing the current status, developing a plan and monitoring the plan.
Sounds a lot like the financial planning process; doesn't it? Well, it could be, but in this case it describes a new initiative from Fidelity Investments called Fidelity Plan Sponsor Advantage.
Quite frankly, after writing about Fidelity's new Roadmap Planning Tool for RIAs in my other article this month, I was a little bit hesitant to write a second Fidelity story so soon. But credit should be given where credit is due, and it appears to me that Fidelity has done some excellent work here.
There were two themes in particular that piqued my interest in Fidelity Plan Sponsor Advantage.
The first is the typical American's lack of preparedness for retirement. According to Jack Callahan, president of Fidelity Institutional Retirement Service Co.: "Although defined contribution plans are rapidly becoming the primary retirement savings vehicle for American workers, a significant percentage of employees fail to maximize this important retirement savings opportunity. Fidelity developed Plan Sponsor Advantage in response to the increasing number of plan sponsors asking for assistance in helping them manage risk by driving employee participation, improving plan effectiveness and helping employees more effectively save for retirement."
The second theme is workflow, technology, and efficiency. As one who preaches these themes on a constant basis to advisors, I was very interested to hear that Fidelity was adapting these techniques and applying them to servicing plan sponsors.
There are numerous studies indicating that Americans are not saving enough for retirement. A survey that Fidelity conducted last May found that one in three workers have pushed back their expected retirement timetable due to financial shortfalls. Of those continuing to work, the reasons cited were:
Clearly, there is room for improvement, and for those firms concerned about the long-term welfare of their employees, Fidelity Plan Sponsor Advantage can help.
Fidelity provides an Executive Briefing document, a Retirement Plan Review, and an Investment Review that provide decision makers with a full understanding of their current plan, including strengths and potential weaknesses. According to Callahan: "Traditionally, the planning and annual reviews have been done manually on a one-off basis. Fidelity Plan Sponsor Advantage allows us, along with the plan sponsor, to take an automated and integrated approach to maintaining and improving retirement plans."
One unique asset that Fidelity brings to the process is a database of 12.5 million defined contribution plan participants. "We can run analytics against our database for employers. We can see how their plan compares to our entire database, or to other similar companies within their industry."
For example, if benchmarking reveals that other similar companies have greater employee participation overall, they can dig further to find out why. Fidelity can compare the asset allocation of the typical employee within a single plan against similar firms, or against the whole database.
They can also analyze data within the plan to pinpoint problems. For example, are many employees holding very concentrated positions? Are there a large number of young employees not participating, or are there a large number of young employees invested 100% in money market funds?
Once the weaknesses are uncovered, a comprehensive business plan can be created automatically. The plan will recommend a variety of solutions for plan improvement. These might include adding an automatic increase program to increase overall participant savings rates, rolling out a personalized employee communication program to target a specific employee segment, or modifying the investment choices. In addition, alerts can be triggered so that all participants getting ready to retire can be offered help with income planning for retirement.
A "scorecard" is tied to the business plan. This allows the plan sponsor to monitor progress toward the goals for the year. For example, let's say that this year a sponsor sets two goals: increase plan participation among employees under 30 years or age and help prepare workers over age 60 for retirement. The scorecard might outline the actionable items to be taken and track progress throughout the year to see if young employees are signing up for the plan and how many older employees have attended a seminar or participated in online retirement presentations.
"This is a first in the industry in terms of number of services and in terms of automation," said Callahan. "It allows us to meet the needs of our plan sponsors in an efficient manner and frees up our relationship managers so that they can spend more time with their clients."
It will take some time to gauge the success of this initiative, but it is one that bears watching. Defined contribution plans are becoming the prevalent retirement saving vehicle for Americans, and clearly, to this point, many eligible employees are not taking full advantage of their savings opportunities, while others are not achieving the rates of return that they should.
If Fidelity can help the typical plan participant to get better results, while at the same time bringing greater efficiency to the process, that is something that all of us will want to emulate. Fidelity Plan Sponsor Advantage may provide valuable insights for all of us.