What did Vanguard hope to help small businesses achieve when VRPA was started five years ago?
Crystal Hardie Langston: Bottom line, small businesses and their employees should have the same access to low-cost, high-quality plans. We had businesses continually coming to Vanguard looking for a lower-cost program than what was available in the marketplace. VRPA has met that need by making 401(k) plans more accessible to small-business owners and by pushing industry costs lower for plan sponsors and participants. Through low-cost investments and retirement plan expertise, we're extending access to high-quality plans to thousands of employees so they can save more for retirement.
How is VRPA helping small businesses manage the challenge of providing retirement plans for employees?
Crystal Hardie Langston: Small-business owners wear many hats and juggle many competing priorities. So, it's difficult for these employers to find the time and money to offer an attractive retirement program that appeals to the top-notch talent they need to recruit and retain.
We've seen firsthand that VRPA helps these small businesses by providing them with the right tools and information to manage a competitive retirement plan. For example, we can help employers act in the capacity of a fiduciary, remain compliant with IRS and Department of Labor regulations, as well as ensure that employees have access to information on how to use their plan to meet their needs.
Considering the complexity of 401(k) plans, how are small businesses managing plan design?
Crystal Hardie Langston: Small business plan sponsors are stepping up and designing their plans like larger, state-of-the-art plans, and some are even faring better than larger plans.¹ Many smaller plans, for example, are not only offering target-date funds, but they also are defaulting participants into them at increasing rates. As a result, nearly 80% of VRPA plan participants have an optimal, broadly diversified, and balanced portfolio. Many of the small-business owners we serve also work with a designated financial professional who provides an additional source of retirement expertise.
How are financial professionals helping small businesses meet retirement plan challenges?
Crystal Hardie Langston: Vanguard has been working with advisors in an increasing capacity over the last 13 years, but over the last five years, we've seen a dramatic and positive shift in the role financial professionals play. Traditionally they've been hired for their expertise as investment experts. However, many also have cemented their roles as retirement plan specialists, specifically by providing ERISA expertise. As a result, they've expanded their services to partner with business owners to help them understand and navigate their fiduciary responsibilities.
Many financial professionals are now offering support for complete retirement plan management as well, including plan design consultations, participant advice, and fiduciary services. Plan sponsors are ultimately responsible for their plan, but we've seen tremendous success in working with financial professionals to ensure plans stay on track. As a result, we're constantly evolving VRPA to better partner with these professionals.
With the growing need to provide retirement programs to small-business employers, many providers are aggressively entering this space.² How is VRPA differentiating itself from other options?
Crystal Hardie Langston: We're drawing on our legacy of low-cost investing and defined contribution leadership. Through VRPA, we can offer small businesses access to some of the lowest-cost options available to investors. For example, we recently expanded our institutional suite of Target Retirement Funds.
In addition, Vanguard has been recognized as a leader in defined contribution innovations, and we're investing significant resources to continue to improve and evolve in this space. We can provide educational resources that include targeted communications and an online learning experience. We also use our retirement research to drive many of the decisions we make in our service offer.
How does VRPA help plans navigate proposed regulatory changes, including fee disclosures, retirement income, brokerage windows, and other regulatory initiatives?
Crystal Hardie Langston: Vanguard is an active voice in Washington, and we work closely with our clients to ensure they understand how new regulations may impact them. VRPA was specifically designed to help small businesses navigate the administrative hurdles that are involved with these changes. We also guide plan sponsors to help them meet regulatory requirements, and the research provided by our legal and ERISA experts outlines fiduciary best practices in plan and investment design to prepare for any regulatory changes.
Where do you see the retirement industry five years from now?
Crystal Hardie Langston: First and foremost, services will be driven by a continued and increasing focus on cost and fee transparency. I also think indexing will continue to dominate in the defined contribution space. Meanwhile, we'll be able to provide more individual investment support by working with financial professionals.
While there has been tremendous progress in the defined contribution space, there's still opportunity to move the savings dial, particularly for small-business participants. By partnering with plan sponsors and financial professionals, we'll find and implement innovative ways to prompt better savings behaviors and help move investors toward retirement readiness. As the industry changes, so will VRPA. We're continually working to provide the highest-quality service available while also doing what's expedient for plan participants.
What does Vanguard have in store for its clients in the year ahead?
Crystal Hardie Langston: We've got some exciting developments in the works. In the near future, look for us to do the following three things. We’ll launch a redesigned employer website with improved navigation and easily identifiable action items. We’ll also be releasing a new participant website with a modern look and feel that helps employees understand how to save meaningfully for retirement. And, finally, we’re updating the Fiduciary Benchmarks report to add new data points for enhanced comparative analysis of your plan.
¹ Vanguard, How America Saves 2016: Small business edition, June 2016.
² Cerulli estimates that nearly 16 million Americans working full-time for private-sector businesses with fewer than 100 employees don't have access to an employer-sponsored retirement plan of any type.
Notes:
- All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
- Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date.
- Retirement plan recordkeeping and administrative services are provided by The Vanguard Group, Inc. (VGI). VGI has entered into an agreement with Ascensus, Inc., to provide certain plan recordkeeping and administrative services on its behalf. Ascensus is not affiliated with Vanguard Marketing Corporation, The Vanguard Group, Inc., or any of its affiliates.
