Expert Interview with Jonathan Broadbent About Pension Plans

Planning for retirement has changed a lot in the last 20 years, and it is safe to assume that it will be nearly unrecognizable in another two decades. When you’re already struggling to keep up with life, how can you expect to keep up with all the changes with retirement plans, let alone understand them? How can you best assert that knowledge for your own portfolio? The need for specialized, specific advocacy is obvious, and becoming more so. Jonathan Broadbent from Plan Partners answered our questions about when to consider a dedicated retirement firm, and also shared some insider info from the field. Who is Plan Partners? How did you get your start? What prompted you to form your own company? What differentiates you from other retirement consultants that are out there? I’ve seen firsthand the damaging effects of conflicted non-specialists – what I like to refer to as “and” advisors, as in advisors who mainly do something else “and” workplace retirement plans (often as an afterthought). This gave me the idea of creating an advisory firm dedicated to the ongoing operations of workplace retirement plans. Having worked with a national third party administrator, I learned what it takes to design and administer unique and very customized plans. But then I saw opportunities lost as sales organizations began providing their own scaled-back documents, which often limits their liability while being stacked with their products. I’ve said it often: if I were to put my finger on the single greatest reason our nation’s workplace retirement plans are not living up to their full potential, I’d have to say it’s “fee negotiations.” Sales organizations are notoriously bad at self-governance, and conflicted salespeople are not very likely to reduce their own compensation or negotiate fees with their parent company. Working Americans deserve better. The overwhelming majority of those who advise workplace retirement plans do something else “and” these plans. Not us. Plan Partners is not interested in gaining the relationship for the express purpose of then selling ancillary investments and insurance to the plan’s participants. We believe that this approach not only does a disservice to the plan’s responsible plan fiduciaries, but also puts the plan’s advisor at odds with the interests of the plan. What benefits does only working with pension plans give? What are the dangers of spreading yourself too thin? I believe that the overwhelming majority of plan advisors are spread too thin before they’re even engaged. Non-specialists (insurance agents, brokers, bank representatives, accountants, etc.) who focus on trying to capture rollovers or sell other services to the plan’s participants (often focusing on the high wage earner to the detriment of the average worker) routinely have little bandwidth left to provide proper guidance to the plan. This is a breeding ground for high fee and neglected plans. At Plan Partners, we focus on fiduciary best practices, examine the design of the plan, actively engage in fee negotiations, and run plans in conjunction with the plan’s responsible plan fiduciaries as an ally just as if we’re working in corporate governance. What part does a pension plan play in planning for retirement? Regarding workplace retirement plans, which we often refer to as “pensions” since this term has come to mean more than the traditional defined benefit plans which have now mostly disappeared, should play an absolutely vital role in planning for retirement. They truly are the only one that the individual participant exercises control over. We cannot control Social Security or what the federal government does with it or how long it will last. Individual accounts such as IRAs and certainly retail brokerage accounts typically have much higher fees, and if you can tax shelter; you likely cannot save nearly as much as you might in a workplace retirement plan. What are some things that people should keep in mind if they’re concerned about inflation and outliving their retirement plan? Two words: appropriate risk. Unless you’re independently wealthy, you’re working hard to earn enough to enjoy life as well as fund some meaningful future for yourself. As you save, inflation erodes the value of what you’ve saved. The more risk you avoid in your portfolio, the less you’re likely to earn based on historical performance. This means that you’ll have to either work longer before you retire or withdraw less. Imagine what would happen if you run out of money after you retire. Better to build and manage a well-diversified portfolio and set a plan for your retirement income – a spending plan, if you will. Don’t have the time or wherewithal to tackle this? Find what I like to call a “do it for me” option; someone who will put a whole bunch of pieces together to build a well-rounded portfolio, monitor it, and make periodic adjustments as needed. Avoid conflicted providers if you decide to go this route. I’m a huge advocate of custom model portfolios in workplace retirement plans. They’re a great alternative to “target date funds” or “balanced” or “global” funds, most of which are stacked with proprietary in-house funds. What are some special considerations for people who are not necessarily sticking with one company for their entire careers? I’ve been conducting employee education sessions all across the country for over a decade. It still sometimes surprises me when people ask if they can move their money from a workplace retirement plan if they leave and go somewhere else. Any money you elect to defer into a plan such as a 401(k) is always your money. Always. If you leave to go to another company, you’ll have a few choices about what to do with your money; but remember, it’s always your money. If your company is matching your contributions or putting some extra money in as occasional profit sharing, there may be a vesting schedule. This simply means that some of the money your employer puts in your account for you may not move unless you work a certain number of years for them, but this has nothing to do with the money you elected to set aside for your future. Plan Partners is made up of “meticulous fiduciary coaches, unconflicted and relentless fee negotiators, and exceptional plan advocates.” What is a fiduciary coach? What are some of these fees that you negotiate? I’ve said it before and I’ll say it again; “If I were to put my finger on the single greatest reason our nation’s workplace retirement plans are not living up to their full potential, I’d say it’s stems from a lack of fee negotiation!” All providers have fees. Many of them are good at hiding them or making them seem smaller than they actually are. Don’t get me wrong – workplace retirement plans are great, and beat the heck out of the retail alternative (you have buying power with a group plan that you cannot get as an individual, not to mention the protections you get from most workplace retirement plans). But that being said, plans such as 401(k)s have legal costs to set up and maintain the plan’s documents, investment costs for things such as mutual funds, custodial costs for whomever is holding the assets, recordkeeping costs to pay the people who manage processing the frequent transactions, accounting costs to pay for filing tax documents, etc. And usually, the accidental advisor (the “and” advisor) stays oblivious to these fee structures but instead simply collects yet another fee. Ten years ago, it wouldn’t surprise me to find a plan with 3% in fees with an advisor who hadn’t looked at it in years. Today, there are requirements in place to protect the plan’s participants. They’re a bit complex, and may seem daunting at times, but they’re there to protect the people the plan was set up to provide for and to force employers to do the best job they can in order to assure compliance with these requirements. Many employers, especially small ones, don’t have the time, wherewithal, or infrastructure to tackle evaluating service provider agreements, negotiate fees, uncover conflicts of interest, and report on their efforts. Many, in fact, are unsure of their exact role in the process. That’s where we come in. Having no product or provider affiliation, we can objectively coach employers on what needs to be done, help build a plan to do it, and then help them execute it – or any combination of the above. We’ve coached other advisors, broker/dealers, insurance agents, nonprofits, municipalities, and a plethora of plan sponsors on how to do an effective and thorough job of addressing these requirements – without breaking the bank. You help people put together custom model portfolios. Have you noticed any industries that are exceptionally solid and stable that you could share from putting these portfolios together? We’re not the only provider of custom model portfolios. In fact, I’d love to see much more competition! Even if it means we get less business, I’m that big a fan of custom model portfolios. Their ease of reporting, transparency, and customarily conflict-free and lower fee structure make them a great go-to for plan participants who are not comfortable tackling building and managing their diverse portfolios over time. This is still a new enough and small enough niche that I’d hesitate to say that any one industry is taking better advantage of it than others. You have a section for useful resources on your website. What are some useful websites and apps that people should be using when preparing for retirement? We stay very focused on the plan’s governance and running the plan for maximum advantage to participants; however, we’ve made a good name for ourselves as a product-free environment for participants to research without the hassle of salespeople. We try to put anything out there that participants might find helpful in their quest for the best answers for themselves. Our hope is that they print out or forward some of the thought-provoking questions we raise to their personal financial advisors so that it helps both of them uncover better options. As a secondary objective, we hope that more of those personal financial advisors (the ones that don’t wish to be an “and” advisor, or who have lost interest in also trying to manage workplace retirement plans) will learn about us and come to view us as allies. Neutral as we are, we are still not bashful about posting helpful resources from sales organizations. There are a great many firms that put good hard work and development into helpful tools for participants. Insurance companies and mutual fund companies frequently top that list. They have large budgets and produce very high-quality tools. We’re asked about their use periodically, but I’d rather post them to help people and have to answer for them than not have them. (We’ve never accepted any “finder’s fees,” “override fees,” or soft-dollar kickbacks for giving preferential treatment to any firm over another.) Check back regularly, and hit the Participant section of our website as well as our blog. Like, follow, Link, Google+, or watch our videos to pick up on all the latest news from a well-known, sales-free, and objective resource. You wrote a blog post about why people should prioritize retirement savings over college savings. Should people do that? What are some reasons this could be true? The kids can adjust their college goals. Can retirees? It may sound heartless to say, but the kids can cut other corners, work through college, take loans, start at a community college and earn their way into the college of their dreams. What alternatives does a retiree have? If they’re out of money, they’re out of money. Then they become a drain on the very kids they’re trying to help. Better to find other ways to help. Offer them room and board, if need be, to get them started on their college path. What are five things that people can do, to prepare for retirement, to keep up with the times?

• 1. Build a well-diversified portfolio.
• 2. Fund it consistently over time.
• 3. Periodically evaluate the portfolio relative to changing times and prevailing sentiment.
• 4. Rebalance the portfolio roughly annually.
• 5. Stay engaged with your employer to make sure they’re acting as prudent stewards of your workplace retirement plan (if you have one). Don’t like one of the fees you see listed on that fee disclosure form you get in the mail? Question it! Think your company plan is large enough that you qualify for a less expensive share class of the mutual fund you like? Ask about it!

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