To keep a ride running smoothly, avoid costly repairs and ensure it gets you to where you want to be, every good mechanic needs to understand what is going on under the hood. It is no different for public school districts and other government entities that offer 403(b) and 457(b) plans. In 2018, when we last visited Bolton Investment—a CEFEX registered investment advisory firm, and national employee benefits firm specializing in pension and retirement, health and welfare benefits, investment, and compensation consulting services for public sector, multi-employer, and corporate organizations, the firm was spearheading a movement among public schools and other public plans to thoroughly assess their 403(b) and 457(b) plans to ensure they were, indeed, operating in the best interest of plan participants to get them where they want to be in retirement.
Two significant law changes for retirement plans and a pandemic later, we wanted to find out how the firm and plan sponsors were faring. We recently caught up with Senior Consultant Michael Beczkowski, AFBP, AIF, AIFA, APMA, CPFA, CHSA, PPC, MSF at Bolton Investment. Beczkowski confirmed that they have seen a marked uptick in attendance at their plan governance seminars and acceptances to conduct fiduciary training for committees, done in partnership with Columbia Threadneedle’s value-add program through the Retirement Learning Center (RLC). As a result, plan sponsors are seeking out fiduciary training and integrating fiduciary best practices into their plan governance programs such as
- Adopting a plan governance charter to better define roles and responsibilities;
- Drafting and following an investment policy statement (IPS) to optimize participant outcomes and contain fees;
- Implementing an Education Policy Statement to foster employee financial wellness;
- Purchasing fiduciary liability insurance as a safety net; and
- Scrutinizing plan providers more regularly and carefully.
School districts and governmental entities are becoming more aware of their responsibilities with respect to plan participants and want to proactively implement effective fiduciary liability mitigation strategies rather than react to potential litigation.
“Plan sponsors are much more interested in looking at what is underneath the hood in their retirement programs,” observes Beczkowski.
He credits the success they are seeing with plan sponsors and participants to the firm’s philosophy of upholding an overall prudent plan governance approach to managing plans.
When plan sponsors engage with Beczkowski and his team, oftentimes, they quickly realize some of their previous procedures and/or program selections were not optimal and they are interested in upgrading both. Beczkowski notes that roughly 95 percent of the time, a plan governance review results in a provider search. The simple reason—a plan governance review process uncovers deficiencies such as
- High and unclear fees embedded in the plan;
- Nontransparent revenue sharing arrangements utilizing inappropriate share classes;
- Imprudent investment options;
- Excessive use of a provider’s proprietary funds, particularly in “give away” asset classes (e.g., S&P 500 index and stable value); and
- Overuse of a provider’s proprietary target date funds (TDFs).
Beczkowski notes, “There’s nothing wrong with using proprietary investment products, as long as they meet the same fiduciary and investment standards that we apply in an unbiased monitoring and selection process. In essence, vendor selection and investment selection are separate and distinct processes and require examination with an impartial lens.”
In the best interest of plan participants, Bolton urges plan sponsors to institute an Education Policy Statement and create an education service model for their participants that gets at the heart of their needs. While many plan support firms in the industry provide seminars and base level financial education for participants, Bolton Investment takes it up a notch by offering holistic financial wellness information and, where plan sponsors are willing, investment advice to their participants.
Some of the aspects and elements of Bolton’s unique participant education model include exploring and helping participants understand longevity issues, the adequacy of their savings and how to transition from an account balance to retirement income.
As Beczkowski explained, “We want to help participants imagine and understand what the dollar amount of their accumulated account balances will look like as a stream of lifetime income replacement in retirement.”
On this initiative, Bolton Investment was ahead of the curve, offering retirement income illustrations years before the DOL, under the Setting Every Community up for Retirement Enhancement (SECURE) Act, mandated defined contribution plan sponsors provide participants with two lifetime income illustrations on their account statements at least once every year. As a result of Bolton’s one-two combination of financial wellness exercises and retirement income illustrations, the firm has empirical data to demonstrate to plan sponsors and participants how improved retirement readiness scores dovetail with adherence to an Education Policy Statement.
As it relates to the SECURE ACT, Bolton was quick to embrace provisions related to lifetime income (i.e., portability of lifetime income options, lifetime income disclosures and lifetime income provider selection). The firm is seeing a surge in client interest and the need for extensive communication with providers as retirement income product innovations come online. Beczkowski stresses that the key to improving retirement readiness scores results from synchronizing novel plan design features with advisor guidance for plan sponsors and participants beyond initial product roll out.
After the pandemic started in early 2020, Bolton was exceptionally efficient at introducing and implementing provisions of the Coronavirus Aid, Relief and Economic Security (CAREs Act) because,
“… our technology worked for us. Our plan sponsors were immediately engaged because we had a ready capability to communicate virtually to guide them through making quick, but informed, CARES Act decisions related to more favorable plan loan provisions and coronavirus-related distributions (CRD).”
Bolton Investment consulted with sponsors on a client-by-client basis on the pros and cons of making changes to plan loan provisions and adding CRDs. Consequently, some of Bolton Investment’s 457(b) sponsors revisited the topic of plan loans and, imminently, decided against relaxing their loan policies out of concern for their participants’ best interest.
On the topic of litigation, it is no secret that 403(b)s have been in the bullseye of prominent law firms, especially as it relates to allegations of unreasonable fees.
Beczkowski chuckles, “Fees and excessive fees have always been on our radar for the plans we work with. It is silly if they haven’t been a focus before now.”
Beczkowski credits the Centre for Fiduciary Excellence’s (CEFEX’s) certifications and framework for much of Bolton Investments’ advisory success.
“I give a lot of credit to CEFEX for elevating our focus and keeping us ahead of the trends.” Beczkowski notes, “Numerous industry studies have found that for every five basis points saved, participants can really improve their ability to accumulate assets. This ties in directly to a plans IPS.” Beczkowski envisions future lawsuits across all retirement plan types from participants who reach retirement without having saved enough to generate adequate retirement income. “Plan sponsors that don’t have an IPS and solid process in place will be likely legal targets,” Beczkowski warns. He continues, “A great defensive playbook for plan sponsors requires a great offensive plan for participants.
Beczkowski also admires CEFEX for the emphasis the organization places on evaluating target date funds (TDFs). To Bolton Investment, it comes as no surprise that the presumptive SECURE Act 2.0 includes benchmarking requirements for TDFs.
“Many of our plans love their TDFs and most continue to use them. But TDFs have evolved and making sure we are matching the right TDF to a plan sponsor’s and/or committee’s philosophical desires and goals is always front of mind. While other qualified default investment alternatives (QDIAs) exist, most plans still want TDFs—albeit evolved versions.”
Looking ahead, other new plan design features like employer matches on student loan repayments, should have widespread appeal to organizations, especially those with younger workforces. Such features will add another educational component to plans.
In summary, upholding a prudent plan governance process appears to be working well for Beczkowski’s team and their public school system and government clients. Bolton Investment is a prime example of how acquiring a heightened level of acumen through elite programs such as CEFEX certification leads to success in this sometimes overlooked and underserved market.