Principal Financial Group, a Des Moines, Iowa-based investment management firm, service provider of defined benefit (DB) pension plans and defined contribution plans (DC) and an insurance company, with a total of $674 billion in assets under management (AUM), (including over $200 billion in retirement assets) is touting a new platform for retirement plans with assets under management of less than $1 million. The offering may be of interest to institutional investors who have been seeing an overall trend in which plan sponsors are reducing DB plans in favor of adding DC plans.
The platform includes two streamlined retirement packages, Principal Flex and Principal Flex – Open. The firm has given nearly 1,000 quotes on pricing for the plans within a month of rolling out the new products, said Kevin Morris, v.p. and chief marketing officer of retirement income solutions at Principal. The packages are designed for 401(k) and 403(b) plans and are intended to help small- and medium-sized businesses (SMBs) and tax-exempt organizations offer flexible retirement benefits to employees. Principal works with 50,000 plans in the retirement space. “We’re making it easier for newer business owners and entrepreneurs in the marketplace to start a retirement plan so they can focus on running their business,” said Morris. “Most of the businesses will interact with the platform online.”
Principal provides services to plans of all types, including the plans of tax-exempt organizations, such as charitable organizations, educational organizations, governmental organizations, associations and foundations.
As corporate America has sought to reduce its retirement-income liabilities and volatility around funding retirement plans, DB plan participation has fallen from 45% to 15% of employees within the private sector, said Russell Kamp, managing partner at Kamp Consulting Solutions. The move from DB to DC is having an impact on many investment advisor organizations, he said. “Mutual fund companies that got into the 401(k) space early have a huge advantage, and include Fidelity, Vanguard and T. Rowe Price,” Russell said. “Size doesn’t necessarily help in managing assets—better performance depends on whether the delivery vehicle has an edge in terms of performance and cost and how its tactical exposures are structured,” he noted.
Principal Flex and Principal Flex – Open offer participant services and customizable plan features typically enjoyed by larger organizations, Morris claimed. The packages help advisors to arrive at a ballpark baseline cost to the business owner or plan sponsor with fewer inputs, choose investment options to fit the retirement plans of SMBs, evaluate plans with a transparent cost structure and enable compensation flexibility, Morris said. SMBs have 500 or fewer employees and make up 99.9% of all U.S. businesses. Of those with fewer than 100 employees, 47% do not have a retirement plan, Morris said. “Newer entrepreneurs are often hesitant to start a 401k plan, but it’s hard to attract employees without it,” Morris noted.
The U.S. Revenue Act of 1978 was the catalyst for 401(k) creation, explained Kamp. “Firms like Johnson & Johnson used defined contribution plans for its original purpose, which was as a supplement for high earners and to use as a management tool to attract and retain managerial talent that would have not accrued enough credit in a traditional DB plan. It was never intended to be the primary retirement vehicle,” he told Institutional Allocator. “Today, the 401(k) plan has become a retirement vehicle for everybody. Unfortunately, the 401(k) plan is a glorified savings account in which everyone has easy access to their assets – it’s like asking everybody in the country to become a portfolio manager, wherein they must fund, manage, and disperse this benefit while trying to predict their life span and other factors in order to accurately plan for retirement.”