ABG and the Retirement Plan Industry

by John Wallace

Two billion dollars in plan assets makes this firm one of the largest recordkeeping companies in the nation.

Alliance Benefit Group of Illinois (ABG) began as Small, Parker and Ackerman, Inc. in 1968 with a staff of four. Today, the firm has grown to employ nearly 70 associates in its principal office in the Twin Towers Office Plaza in downtown Peoria. With an office in Chicago and a branch office in Madison, Wisconsin, the firm’s consulting and service staff number more than 75.

ABG provides recordkeeping, administration and investment consulting services as a Registered Investment Advisor (RIA) to employer-sponsored retirement plans in 38 states. As of the end of March, the firm serves nearly 40,000 retirement plan participants with more than $2 billion in plan assets. The firm is one of the largest independent record keepers for retirement plans in the nation.

» John Blossom, President/CEO
With more than 40 years of experience in the industry, John Blossom has led ABG’s growth to become a nationally recognized retirement plan provider. He holds the Member, Society of Pension Actuaries (MSPA) designation and many other industry certifications, including Certified Pension Consultant (CPC), Cash Balance Consultant (CBC) and CLU member of the Society of Financial Service Professionals.

Blossom is accredited as a retirement plan investment professional by the Center for Due Diligence and is included in its ERISA Advisor Evaluation (EAE) program. In addition, DALBAR, an independent company that reviews and certifies investment advisors, has designated Blossom as a “Registered Fiduciary” (RF).

“The DALBAR designation is the crème de la crème of certification in our industry,” says Blossom, “because it represents a complete review of our processes and procedures, in addition to a thorough check of our clients’ opinions and our service record. The RF designation is the most valuable credential I have. It really does vet our capability from an independent perspective.”

A Wide Variety of Plans
Through exceptional service and creative benefit plan solutions, ABG has long been active in helping both employers and employees administer and optimize the impact of their retirement plans. ABG serves many of its clients with a bundled service provider approach. Many plan sponsors like having a single source responsible for retirement plan operation.

 

“Our firm handles every step of retirement plan operations in our offices in Peoria,” says ABG President and CEO John Blossom. The firm was a pioneer in the same-day investment of participant contributions and same-day investment changes. “By providing a bundled product we can reduce cost and streamline operations,” he adds.

The company’s SmartPlan, a participant communications tool, offers a web-based, virtual experience to participants that engages them and develops an understanding of how important it is to maximize their contributions. The online tool assists participants in determining a proper risk-based asset allocation and processes their instructions immediately, without paperwork or employer involvement. This innovative tool was recognized last year by Investment News magazine as the No. 1 communications tool in the retirement plan industry.

ABG also provides actuarial and administrative services to defined benefit plans. Although the popularity of these types of plans has lessened over the years, the company is experiencing renewed and growing interest in a specialty form of defined benefit plan, the Cash Balance Retirement Plan. These plans are an interesting option for smaller organizations who want to maximize retirement benefits for highly paid personnel.

Finally, ABG is a pioneer in the development of Health Savings Accounts (HSAs) to enable pre-tax savings for healthcare needs. The firm also provides administration for Flexible Savings Accounts and offers a web-based payroll service that allows employers to provide paychecks and invest retirement plan deferrals seamlessly and concurrently. Truly, ABG is able to efficiently and effectively manage a wide variety of retirement and employee benefit plans.

Trends in the Industry
The industry itself is undergoing many changes. 2011 will likely be known as the year of the fee disclosure as new regulations require full disclosure of service fees to plan sponsors and participants. ERISA regulations and the Department of Labor (DOL) have expected retirement plan providers to allow competitive analysis of fees charged for many years. This focus has now accelerated.

These new regulations prohibit any compensation to a plan service provider that does not properly and completely disclose plan costs beginning January 1, 2012. Furthermore, disclosure of fees that participants pay from their retirement plan accounts will be required beginning this October. Many employers who have been led to believe that their plan is “free” will have a rude awakening when they see the full impact of fees coming from their retirement plan accounts.

There will most likely be a great impact from these disclosure regulations. Retirement plan providers that gained business with hidden fees will now be compared in the competitive marketplace. Likewise, plan sponsors and participants who may have been deceived about costs will be unhappy. As a result, the turnover rate for service providers who have not been so transparent is expected to increase. Enhanced vendor searches, lower fees and a consolidation of weaker providers are likely to occur.

ABG has been an advocate of full and complete fee disclosure for more than a decade. “We don’t fit well with the type of advisor who thrives on the incomplete disclosure of compensation and hidden fees,” says Blossom. “We just do not believe in that.” Because the firm has been a model of disclosure for many years, it expects to gain clients and profit from this new environment.

While the retirement plan industry has been spared the devastation of fraudulent schemes such as Bernie Madoff’s, the resulting tightened regulation of all financial service firms will raise the cost of compliance going forward. Both the Securities and Exchange Commission (SEC) and the DOL are pressing for regulations that will tighten fiduciary standards and require retirement plan salespersons affiliated with brokerage firms and insurance companies to operate with the same fiduciary commitment as RIAs, which is to operate with a total commitment to the client’s best interest at all times. Non-RIA advisers may be limited to products that benefit their own employers and may have conflicts of interest that preclude offering employers access to more advantageous retirement plan offerings.

In addition, a well-designed plan investment menu minimizes the need for individual investment advice for participants. Instead, participants should be enabled and encouraged to select an offering through a plan menu that provides diversification, a proper and understood level of risk, and regular rebalancing. Effective participant education is critical. Regular review of funds held in the plan by a qualified fiduciary expert in accord with standards described in a written investment policy is another key factor for success. As an RIA, ABG has for many years embraced these fiduciary commitments to plan sponsors and participants and even offers a training program for plan fiduciaries.

There are other standards that employers can watch for if they intend to improve the retirement plan success for their participants. A high level of administrative quality is shown by organizations whose service standards are audited annually by independent CPA auditors. Another independent audit of service models and operational controls for the retirement plan service organization is the CEFEX audit. CEFEX is comparable in scope to the widely-recognized ISO 9001 standards.

Looking Ahead…
The market collapse and recession beginning in 2008 brought significant losses in retirement plan accounts and a painful examination of the challenges to reaching a successful retirement. Some companies reduced or eliminated company matching and other contributions. Many participants used retirement plan assets for loans and hardship distributions as they tried to survive in uncertain times. In addition, the challenges to Social Security and the need for a strengthened private retirement plan system have prompted the consideration of legislation of many types.

“Now the business climate is improving,” says Blossom. Many employers who reduced or eliminated their plan contributions have resumed them. Helping participants reach an “effective retirement” is gaining center stage among progressive employers. Efforts to encourage participation through automatic plan enrollment, automatic annual contribution increases and more effective plan education tools are rapidly becoming common ways to assist participants in achieving this goal.

The retirement plan industry is changing rapidly. Full disclosure of conflicts of interest and all factors of plan costs will enable employers to make better choices of service providers for their plans. Enhanced tools designed to help plan participants better achieve their retirement goals are increasingly being utilized. Success will come to those firms that can consistently exhibit innovation and leadership. This is an era that will benefit Alliance Benefit Group of Illinois as the Peoria area’s major player in the retirement plan industry. iBi

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