There are literally billions of dollars spent to educate participants in defined contribution (DC) plans with even more invested in robo-advisors by venture capital firms with little to no results. But very little is spent educating HR, finance and business owners in charge of managing their company’s DC plan about retirement industry jargon. A small business owner at a TPSU program held at Vanderbilt University explains how even the simplest terms that the DC industry uses are confusing to her and many others like her, hurting her ability to help employees.
The small business owner voiced frustration with a lot of retirement industry jargon. For example, she did not know about plan sponsors, record keepers or advisors, nor about their roles. Before companies delve into investments, plan design and compliance, it’s essential to understand the roles of the primary parties and how they can best work together.
The business owner attending TPSU learned that her company is the plan sponsor and that the advisor helps to create and manage the plan including determining which record keeper to hire. That record keeper, often in partnership with a local TPA (third party administrator), manages the records and helps with compliance and consulting. The money managers, usually independent from the record keeper and advisor, provides the investments that that employees, also known as participants, chooses.
And the problem with industry jargon and the roles of different service providers is not unique to smaller companies evidenced by a 650 employee organization where the CFO, who is also a CPA, was confused. Helpful was the use of a healthcare analogy to understand how all the parties that are vital to running a DC plan interact which include:
1. Advisor = Doctor
2. Record Keeper = Hospital
3. Investments = Pharmaceuticals
The plan sponsor is the parent or fiduciary of the patient who is the employee in the plan sometimes called the plan participant. Jargon can be a problem because some people call the record keeper a platform which actually happened at the Thunderbird TPSU program.
Also uncovered at many TPSU programs is that adults don’t trust experts and learn more from peers in smaller groups of people like themselves. Over lunch, plan sponsors at TPSU programs, which average 15 companies and almost 20 people, are placed into groups of similarly sized companies to discuss what’s working and not working in their plan facilitated by an industry expert. The business owner at TPSU in Nashville noted that people might be too intimidated to ask questions in larger groups. All lessons we might apply to educating employees.
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