Mid-Market DB Providers and Investment Options

[Guest gladock]

How much flexibility do DB providers offer plan sponsors? Is it mostly commingled pools? Or would our company be able to invest in mutual funds as well, or even have assets privately managed? Also, are providers offering investment counseling, meaning will they manage our money for us (discretionary accounts)? We're thinking about Fidelity, NYLife, Mass Mutual and Cigna? Anyone have experience with these providers?

Thanks,

Rob

[david rigby]

What is your meaning of "DB providers"? The employer (generally) is the plan sponsor, and will be entitled to make most decisions, not the "provider."

There are many actuaries and consultants out there willing to serve you. (I am one of the former.) You may also get a referral thru your corporate attorney or auditor. If you talk to a consultant who tells you what to do, instead of asking what you are trying to accomplish, keep looking.

As usual, a good place to look for information is… this website!

http://www.benefitslink.com/yellowpages/index.shtml

[Guest gladock]

pax - thanks for the link...

To clarify:

We are looking at using the services of a single provider (i.e., Fidelity, NYLife, Cigna/Prudential) by signing up for a bundled product offering. It seems like most bundled products include actuarial services, investment options, participant communication and education as well as plan administration and the handling of disbursements for retired employees. We are the plan sponsor.

I'm just doing some preliminary research to see if anyone has worked with some of the providers I mentioned in my original post; I'm mostly interested in understanding what type of investment options these providers offer to DB sponsors. For example, it seems like some offer only commingled pools while others offer more choices, including mutual funds.

Thanks in advance,

Rob

[Effen]

Just a few thoughts about the "bundled" approach. Generally company "bundles" services in order to obtain more business. Prudential, NYL and Fidelity are primarily after the assets. In order to get those assets, they will offer other services. Because they are primarily asset driven you may not get the best legal and actuarial advice. I am not being critical of them, because they generally do very good work on most plans, but we take over a lot of actuarial consulting projects when the questions leave "the box". I actually have a client that has a bundled product with Principle, but use me for all of the actuarial consulting. (We’re local, more responsive and more efficient - not necessarily cheaper)

Documents tend to be another problem. If you don't fit exactly into their prototype Fidelity will force you to jam your square peg into their round hole. You will need to hire your own attorney to amend their document. When they were CIGNA I found them to be a little more accommodating and didn’t force you to use their document, but I have never worked with Prudential.

I tend to agree with PAX. If they are trying to "sell" you something, you should probably continue to look. A good consultant will listen to your goals and objectives and then design to plan to fit your needs. If you want to best possible service you should hire an ERISA attorney to handle the legal, and actuary to handle the liabilities and an investment consultant to handle the investing. When you go bundled you end up hiring an investment company to do your legal and actuarial consulting which may be cheaper, but could be costly in the long run.

If you go bundled on price, make sure you see "all" of the expenses including the asset-based fees. It is also a good idea to have someone else look over the quote to make sure you understand it. I recently had a client that asked CIGNA to propose on their DB plan. CIGNA quoted $3K which was a fraction of their current actuaries cost. Once we looked at the asset-based fees, we realized CIGNA was actually charging close to 90K which was significantly more than the current actuary and financial consultant combined.

"If it's too good to be true, it probably is"

[Guest gladock]

Effen- Thanks for your thoughts.

We are looking to bundle for 2 reasons. As you mentioned, cost savings is one. The other is for the simplicity of managing a single relationship for all our DB needs. Also, recently, there has been more chatter about the quality of the participant communication. From talking with my HR friend at another firm, it sounds like NYLife has a great technology platform for both plan sponsors and participants. I'm sure Fidelity does as well. I had my 401(k) through them when I worked for another company and the online interface was top-notch.

Ultimately, I think my boss is going to hire a consultant to help us develop the RFP and identify a list of providers.

Rob

[Effen]

Will the consultant be paid a fee or a commission? Be careful there as well.

I will agree that employers think it will be simpler to deal with one company instead of three, but in reality, you will probably still talk to at least three different people in three different locations. They will just answer the same phone. Also, turnover and job movement is generally higher with the insurance companies so you will be constantly dealing with different.

Also, as I pointed out, you really need to get a breakdown of ALL of the fees before you decide it is cheaper to go bundled. Generally, it is not.

I also recognize that it is virtually impossible to change the mind of a person who has already decided that the bundled approach is best. Good luck on your quest.