For Financial Professionals in the US

Plan advisors: 5 topics to discuss at your year-end investment committee meeting

Retirement Director Ben Rizzuto outlines five topics – including recent defined contribution developments and ideas for engaging plan participants – that advisors can discuss at upcoming year-end investment committee meetings.

Ben Rizzuto, CFP®, CRPS®

Ben Rizzuto, CFP®, CRPS®

Retirement Director

Oct 19, 2022
7 minute read

Key takeaways:

  • Personal engagement can help encourage plan participants to make better decisions, as demonstrated by two companies that took a personalized approach to participant outreach and education.
  • Potential changes to required minimum distribution (RMD) rules are on the horizon, providing an opportunity for plan advisors and sponsors to educate participants on the implications for their retirement accounts.
  • A recent court ruling regarding the use of actively managed funds in DC plans highlights why it’s important for plan sponsors to consider the quality and/or types of services being provided when assessing fees.

As we enter the last quarter of the year, many plan advisors are getting ready for their final year-end investment committee meeting with plan sponsors. With that in mind, I wanted to provide a few highlights from our most recent Top DC Trends and Developments guide. The following ideas will not only assist committees as they prepare their plans for year-end reviews, but also help them improve the participant experience.

Along with that, I’ve included some great topics to discuss with plan sponsors and investment committee members on how to effectively engage with participants and hopefully improve their overall experience.

Make it personal

There is no shortage of ideas and opinions about how to best engage with participants so that they do the right thing. You can consider all the behavioral finance tactics, nudges, or choice architecture tricks, but at the end of the day, the best way to engage with participants is in person.

As we move toward the end of the year, and as participants make open enrollment decisions, it’s important to make sure retirement plan benefits and participants’ progress toward their financial goals is part of the conversation. Taking a personal approach may help, and it is exemplified by two companies we highlighted in this quarter’s guide.

Sacramento Credit Union provides a good example of correcting suboptimal participant behavior. The company reaches out to participating employees to ensure they receive the education, advice, and financial planning instruction they need.  Employees who are not enrolled in the company’s retirement plan are personally contacted by the vice president of human resources. During those interactions, she highlights the importance of long-term savings but also highlights the details of the company match and discretionary company contributions and explains how they can add up over time.

Broadhead Enterprises is another company that tries to eliminate any hurdles for employees when it comes to taking part in the plan. They also personally reach out to those who are not participating to see if they need help with enrollment. And because Broadhead is an advertising company largely made up of creative types who may not easily grasp financial concepts, they provide employee education through multiple formats and mediums that account for different learning styles.

While these interactions do take time, they are personalized, and it’s those personalized interactions that lead to better results. Plus, even if participants don’t enroll  immediately after these conversations, employers have at least planted a seed for better decisions in the future.

The most important investment decision

Target-date funds (TDF) are the most prevalent investment type in defined contribution plans. In fact, Morningstar recently published a whitepaper on a new study that found that 58% of defined-contribution plan assets are invested in off-the-shelf TDFs.1 The omnipresence of TDFs and the fact that they serve as a plan’s default investment makes their selection the most important decision an investment committee makes. The paper also reviewed the glide paths of TDFs used by plans, how they may be selected, and whether they matched the behaviors of participants.

Overall, the paper found that mismatches often exist between participant behaviors – such as separation from service or rolling assets out of the plan – and the glide path that is being used by the plan’s TDF. The most common mismatches were:

  • Utilizing a “through” glide path even though the majority of participants roll assets out of the plan at retirement.
  • Implementing similar guide paths across different industries and sectors, even though participants have large differences in salary and likely retirement age.

Morningstar’s research highlights how important it is for plan sponsors to not only review TDFs using the same due diligence process as any other fund in the plan menu, but also to consider how that TDF is going to behave and change over time based on the behaviors, needs, and circumstances of participants.

RMD updates

Required Minimum Distributions (RMD) are an important item for plans and participants, and we have seen some important news on this front recently. First, Warren Davidson (R-OH) has introduced a bill, HR 8331, that would suspend RMDs for the 2022 tax year. Similar to what occurred with RMDs through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the bill would allow those who have already taken their RMDs to roll them over into another plan.

While it remains to be seen what occurs with Davidson’s proposed bill, the IRS did provide some welcome guidance recently regarding RMDs for inherited IRAs. The SECURE Act created the 10-year rule, which dictates that inherited IRAs must be depleted by the 10th year after being inherited. Questions then arose regarding whether RMDs would need to be taken if the account was inherited after the decedent had begun taking RMDs. IRS Notice 2022-53 says “no,” at least for 2021 and 2022. The hope is that further guidance will be provided for the years after 2022.

Although they have yet to be resolved, these two developments on RMDs must be understood by plan sponsors, administrators, and – most importantly – plan participants. The potential rule changes provide a great opportunity for plan advisors and sponsors to make sure these distributions are being administered correctly and that participants have been educated on the potential implications for their retirement accounts.

Plan document amendment extension

Through IRS Notice 2022-33, non-governmental qualified plans and 403(b) plans have been given a little extra time to amend plan documents for the provisions in the SECURE Act. This extension moves the deadline to December 31, 2025. While having more time to get in compliance is always welcome, this extension may serve as the catalyst plan sponsors need to get these items taken care of.

However, it is important to note that this extension does not apply to COVID-related distributions and loans. While these provisions were optional, for those plans that did make them available to participants, amendments remain due by the end of the first plan year beginning on or after January 1, 2022.

Are active funds inherently imprudent?

The recent series of legal wins for plan sponsors continues with the dismissal of an excessive fee suit against Oshkosh Corporation by the 7th circuit court of appeals. This case alleged that fiduciaries allowed the plan to pay high fees to its recordkeeper for recordkeeping services as compared to other comparable plans, and that it had selected and failed to remove investments that charged excessive investment fees. The other more interesting allegation was that plan fiduciaries offered too many actively managed funds, which tend to charge higher investment fees than passively managed investments.

Complaints regarding the use of active funds is something we’ve see a lot of lately. In this case, the court found that the fact that actively managed funds charged higher fees than index funds is not enough to state a claim since the actively managed funds may produce higher returns.

The court also noted that failing to offer active funds to those participants who may seek greater risk and/or return potential may actually be imprudent.

This decision helps create a favorable precedent for plan sponsors and highlights why it’s important for plan sponsors to consider the quality and/or types of services being provided when assessing fees. It also provides a great reason to take investment committees through the exercise of reviewing plan investments and discussing the value, possibly both tangible and intangible, that they bring to plan participants.

As always, I hope the ideas outlined above provide you with some topics for your next investment committee meeting. Even if discussion around these topics doesn’t lead to significant changes, I feel exploring them will allow you to demonstrate your value and help the committee work toward creating a better plan for everyone involved.


1 “Right on Target? Plan Sponsors May Not Always Consider Participants’ Behavior or Needs When Selecting Target-Date Glide Paths.” Morningstar, July 2022.

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