Sponsor Spotlight: Farmers Insurance® Tackles Retirement Income
Head of Pension Investments,
Tony Tomich manages Farmers’ retirement investments. He has a BBA and an MPP from The College of William & Mary, in Williamsburg, VA. Tony began his career in NYC in the banking industry then moved to the internet and telecom industries in the Silicon Valley in the early 2000s. He joined 21st Century Insurance in 2004 and held multiple positions during his tenure with the organization, ranging from Treasurer & Investment Relations Officer to Executive Vice President and Chief Financial Officer. 21st Century Insurance was purchased by AIG in 2007 and was subsequently sold to Farmers in 2009. Tony transitioned Farmers’ $3B DC plan to an open architecture, white‐label structure in 2013. Tony also manages the company’s Socially Responsible Investments portfolio and has multiple leadership roles in the space. These range from a 3 term member of the California Insurance Commissioner’s COIN Advisory Board (inaugural chairperson) to an Investment Committee member for the California Fair Plan to the Chairman of Impact Community Capital, LLC, a for‐profit entity that facilitates over $1B in SRI investments in California and beyond.
Farmers Insurance provides P&C, specialty, life, commercial and other insurance and financial services products.
NEW: Episode Transcript
Rick Unser: Well, Tony, thanks for joining me today. Happy to be here. What a beautiful campus you guys have and looking forward to what you have to say about some fun stuff you guys are doing in your retirement plan.
Tony Tomich: Wonderful. Welcome to Woodland Hills and the Farmers campus.
Rick Unser: Excellent. And I guess just to kick us off, tell me a little bit about who Farmers Insurance® is. Tell me a little bit about your story and how you guys kind of present yourself in the marketplace as you're competing for talent or positioning your brand, etc.
Tony Tomich: Okay, so Farmers® was founded back in 1928 in Los Angeles. Our headquarters are here in Woodland Hills. It's one of the largest and most well-respected insurance brands in the United States. Within our retirement plans, we have a DC plan, a 401k plan that's about $3.4 billion in size. We also have $3.8 billion pension plan and deferred comp plan that's a lot smaller, about $200 million.
Rick Unser: And when you think about all that, I know you have a unique role within Farmers. So I'd love for you to talk about that. But also, when you think about everything you just said there about the DC plans and DB plans and deferred compensation, how do you view that as part of your benefits package? Or how do you look at that in terms of the value it has and helping you recruit and retain talent, which I know today is a huge hot button topic for employers of all sizes and shapes and in all industries?
Tony Tomich: Absolutely. Well, LA is one of the areas where we do business, but obviously we're a nationwide company. We have employees all over the country. But LA in particular is a very competitive market. It's a very dynamic economy. So having the retirement plans as a part of the overall offering to any employee who joins Farmers has been part of the culture at Farmers for a long time. We started with a profit sharing plan that was part of the Farmers culture back in the 30s and 40s. When the company was founded, we converted to a 401k structure in 2009. And the pension has been open for decades and was recently frozen at the end of last year. So I think the culture of Farmers has always been to take care of its employees, to provide opportunities to have retirement income, and have retirement security by being with the company for a long time. And it is a differentiator, I think, in a very tough market for talent.
Rick Unser: And I would say that a lot of the employers I've talked to, certainly over the last couple years, would say that that competition for talent is harder and more intense than it ever has been. So I think the more people can kind of sit back and think about how does this whole retirement plan or 401k thing or if you have a pension plan or other plans, how does that fit into the broader strategy, think that's always helpful. You said something a minute ago that I wanted to come back to and I think there's kind of two ways that people can look at the DC side of their plans, or their 401k plan or 403b, whatever it might be. And I think some people will call them a savings plan and I think others, as you just referred to, might call them a retirement plan. So how do you guys look at, let's just focus on your 401k or the DC side of this, how do you look at that? Is that a savings plan? Is it a retirement plan? As you think back on communicating or how you present that to employees.
Tony Tomich: We definitely see it as a retirement plan. We have a deferred comp plan that we defined more as a savings plan, where there's a defined amount of time that you defer income and then have it be redistributed to you over a period of years or whatever time period you elect. We see that as more of a savings plan where you might be saving for a second home or kids going off to college, things of that nature. Whereas the 401k or DC plan, we definitely see that as a retirement plan for folks to have good retirement outcomes as they hit the age that they choose to leave the workforce.
Rick Unser: And there's been a lot of conversation in the 401k world, in the DC world, about that transition to, hey, well, the world was full of pension plans and along came 401k plans. And now these 401k plans are really the retirement plans. Has your thinking evolved over the years? I mean, I know you said you went from a profit sharing to a 401k, for example. But have you guys kind of always looked at this as a retirement vehicle or is that been something that you guys are actively having conversations about as to what that purpose of the 401k is?
Tony Tomich: I think we've always looked at it as retirement plan. Obviously, the landscape in the United States in general has shifted over the last number of decades. DB assets and DB participants used to be the dominant factor that shifted and has changed quickly over the last probably 20 years. And I think DC assets are growing as a size of that total retirement pool. I think if you look at participants now, I think there's projections that DC participants will be larger than DB participants in the next few years. And so I think with the passage of ERISA back in the 70s, and the opening up of that DC concept, more and more people have shifted to that kind of strategy within their benefit package.
Rick Unser: Yeah, I agree. A lot's changed as you mentioned since the 401k is at the DC concept was introduced, as you also just said, your pension plan was recently frozen. How did you guys go through that process? And maybe what changes in either design or what changes in communication or positioning did you make to the 401k, if any, as a result of that?
Tony Tomich: All of the above. So obviously-
Rick Unser: That's an easy answer there.
Tony Tomich: So obviously, it was a decision that was thought about, discussed, analyzed in great detail by our governance committees and our senior management team. Obviously, it's a very significant change and it was not taken lightly. There were quantitative analytics around it. There was analysis of the communication strategy around it. So it was something that was done with great care and with a lot of deliberation. And so with that decision to freeze the plan, there were some changes made to the DC plan to change some of the structural components of it. One is that we added a new base contribution to it. In the past, we did 100 on six. So if you basically saved 6%, the company matches 6%. So you got 12 on six, so to speak. Now we have a new base 4%. So basically, you get 16 on six, which is one of the things senior management and governance wanted to do to help transition from the pension.
Tony Tomich: And again, there were some other automation features that were added to the plan as well. But overall, I think it was not a very easy decision. I know there was a lot of deliberation about it. But I think we wanted to position the 401k plan to grow as our participation count grew and to give all the folks who were new entries into Farmers and into the Farmers family the best possibility to have a good retirement outcome as they hit those ages that they want to exit the workforce.
Rick Unser: A lot of follow up there. So I'll just kind of pick away a few of these. When you think about that last team you just made is a good retirement outcome. I think what we've seen in the industry is a lot of people have started talking about plan health. Or they've started talking about retirement readiness, or other terminology that maybe are kind of sniffing around that same concept of retirement outcomes. How do you guys think about that? If you're thinking about your employee population, or people's participation or engagement within your retirement plan, what to you says, "Hey, by the time they hit retirement, this is a great outcome that we would like them to be able to have."
Tony Tomich: Right. And obviously, that depends on where they live, and they're pre- retirement income and things of that nature. But, we generally look at retirement income as an income replacement concept. We have different tools and processes in place with a number of our different vendors to help us measure that. But end of the day, every person's retirement is going to be different and I think that's one of the reasons that retirement income is a growing conversation in our industry. Because obviously, accumulation is a pretty homogeneous event. Target dates have kind of one, right? And everyone has been growing balances in a pretty similar way, not 100% similar, but I think the accumulation is pretty similar whereas decumulation is pretty individual.
Tony Tomich: And I think that's something that we haven't had a huge bubble of folks go through yet. And we all see the so-called silver tsunami coming, you know, 10,000 people retiring a day, things of that nature. And it's about, "Hey, how do we let our folks retire with dignity and then have the tools that they need to be able to convert that big balance into monthly income."
Rick Unser: And one more question before we jump into some of the retirement income stuff you were talking about. I know a lot of employers, as they think about communicating about benefits, even if it's good news, they really struggle with, “How do we do this? How do we get this in the hands of the people in a way that they're going to be able to engage with it, the way the people to make decisions that will benefit them, etc.?” As you thought about that big shift there from pension to DC, or maybe even putting more focus on the DC plan, anything that you remember from that communications campaign that worked especially well that maybe other employers might be able to learn from as they're thinking about communicating information about their defined contribution plans?
Tony Tomich: Yeah, sure. So I think one thing we have the luxury of here at Farmers is having an HR team and investment team that focuses on retirement plans and how our participants interact with those plans. So that is a great luxury that we know that isn't available at a lot of different companies. And so when we thought about those communication pieces, there were committees, subcommittees, sub-sub committees. We had external vendors that were involved in the messaging and the communication strategy. There were different delivery channels, whether it was webcast, whether it was in-person meetings, whether it was snail mail, whether it was email, whether it was webcast, whether it was waterfall from senior management to management, to staff. Whether it was when we're thinking about our call centers, the big boards that we have up.
Tony Tomich: And even in our headquarters, we have boards in all our elevator banks and different parts of the building. We have different communications and those kinds of things. So the HR department had an extensive communication strategy and an extensive implementation strategy to try to touch all of our folks and all the places where they're at. We got folks from claims that are out in the field, out helping people when they have a need. You have people in call centers, you have people in our headquarters and they all require different modes of touching, right? So many people want to be touched in different ways, whether it's snail mail, email, meetings, whatever. And so they take all those desires into account when they're putting together those communication strategies.
Rick Unser: Got it. Anything that didn't work as well as maybe you thought? I mean, I feel like some people, when you're thinking about rolling out communications to large organizations, is like, "Oh, well, this is going to be something new that we're going to try,” or, “Maybe this is something that we've relied on over the years." Anything that didn't work? Because I feel like sometimes that's just as valuable for other employers as what did work.
Tony Tomich: Right. I didn't hear any feedback from our HR colleagues as to what channel was more effective than others. I know that they've been rolling out massive amounts of communication to our population over many, many years, not only with benefits, but with a lot of other different types of company initiatives. So I think they have it pretty tuned up. But I didn't hear about any specific strategy or any specific component that didn't work.
Rick Unser: Perfect. All right. So pivoting real quick to retirement income, as you've told us, you guys have really looked at this as a retirement plan. As you're thinking about kind of where the plan is today and where it's heading, how did you kind of work internally to get the conversation moving around putting together an offering or having something available through the plan that would provide people more a tool or resource or something to help them create or think about creating retirement income down the road when hopefully they get to that point where they can leave the workforce?
Tony Tomich: Well, again, I think it comes back to us having that great luxury of having HR and investment folks that are focused on the retirement plans because, again, I know a lot of companies don't have that. And because of that structure, and because of that investment in the retirement plans, I'm able to go out and talk with folks in the industry that are thinking about these problems. I'm able to go to conferences and talk with different external partners that are thinking about these challenges, not only in retirement income, but other ones. And so I'm able to bring that best thinking and best practices back to the way we think about our plans. And so it starts with myself or one of my HR colleagues putting together maybe a meeting with our HR department or investment department to talk about certain concepts. With retirement income, it started with me and as I started becoming more conversant on the topic over the last few years, and becoming more passionate about bringing it into our plan, the conversation started with our HR department and how we would potentially roll this out.
Tony Tomich: I started talking and having multiple meetings with different asset managers, different players within our field on the consultant side, again on the asset management side, and asking them, “How are you guys thinking about this? How are you doing this?” I've talked to my other sponsor, my colleagues who were sitting in my seat, and asking them how they think about it, as well. And so that has evolved into conversations with our governance. And we've spoken about retirement income with our pension committee and we've talked about some of the concepts, the pros and cons. And I think, ultimately, for any plan sponsor, there's a pretty important question, a 10,000 foot question, you have to ask yourself and answer. And that is, “Do you want your 401k plan to be a retirement destination?” And if the answer to that question is no, then it doesn't really matter it's a moot point. But if it's yes, then okay, what structure makes sense for us, what strategies and products makes sense for us within the plan?
Tony Tomich: And at Farmers, we've had these conversations within our committees and we've had really robust dialogue around it. It's something that our governance and our HR partners are enthusiastic about. And the timetable is just a little uncertain. But it's something that I'm personally very passionate about because again, I want to make sure that all my colleagues here at Farmers have the best tools they have to have a great retirement outcome.
Rick Unser: So I want to hit on the passion side of it because I do think that with so much going on in the world of companies these days, and again, small, medium, large, it's not like people are sitting around going, "All right, well, we don't have anything else to do. So what can we do in our 401k plan that would make people..." It's usually not the first thing people are thinking about. So how did you develop that passion? Where did that come from? Or how did that fire get lit within you that says, "Retirement income is something that I need to spend a lot of my own time on or figuring out?"
Tony Tomich: Well, I think it starts with all the plans. Farmers makes promises to its employees and it's my job to make sure that they can fulfill those promises. I take that that duty very seriously. And I'm also a person that if I'm going to do something, I'm going to jump into it and I’m intellectually curious. And I'm just probably intense and Type A and passionate by nature. And so I have a Six Sigma background and so I think I'm a process oriented person. So I looked at this problem and said, "Hey, how do we make it better? How do we solve this issue?"
Rick Unser: And what did you see is the problem you were trying to solve?
Tony Tomich: It's multifaceted. I think there is, again, a lot of structure, a lot of product, a lot of thinking about accumulation but not that much about decumulation. Although that's changing, that conversation is becoming more loud by the day and by the year. Right now, there are a couple of structural challenges. One being the regulatory environment in the safe harbor that everyone talks about or the lack thereof. Two, we're still probably in the first or second inning when it comes to product development with all of our asset management partners. They aren't going to build things if there's no demand for it and that's a very rational approach to it. And then third, is that, again, that 10,000 foot question at the sponsor level, “Do we want this plan to be a destination?”
Tony Tomich: And our thinking and my thinking, personally, is that there's three reasons why it makes sense. One is we have the size to bring people institutional pricing where they're not going to have that outside the plan. Two, there's governance and you have fiduciaries that have a duty to you as a participant to look out for your best interest. And then three is to avoid you being out amongst the wolves and the retail environment. And so I think those are three pretty compelling reasons why someone might want to stay in the plan and commercially why we as the sponsor might want to provide that opportunity for our folks.
Rick Unser: Those are three really good reasons. So speaking of safe harbors, obviously, I think one of the reasons that retirement incomes maybe not more prevalent is that there's still some concern or confusion about where things are headed. So, I know there's been some things happening in the market, whether it's with SECURE or the DOL, hopefully you're potentially coming out with some safe harbors. What are you guys hearing? And then depending upon what actually happens, does that change anything for you guys, as you're thinking about retirement income or your strategy that you would take to roll it out or introduce it?
Tony Tomich: No, I think that that's a question that most people are thinking about right now. I think it could have a significant effect on the strategy and how we think about the retirement tier. I think if RESA or SECURE pass and that safe harbor for annuities, annuity selection and annuity monitoring come into play, it definitely could change the way we think about the three points of our retirement tier. Definitely will change the product set—obviously, annuities will be a part of that and I think most people look at an annuities as one of the most ideal tools to create income. And so, yeah, I think that could potentially change the game in a pretty significant way. Whether Congress passes those pieces of the legislation, whether they get to a vote, who knows? A lot of uncertainty there.
Rick Unser: Speaking of annuities, is that something that as you think about your employee population, or as you have talked about that, what type of perceptions are there around annuities?
Tony Tomich: Well, I think annuities are complicated and I think they're intimidating. I think when someone is in the retail environment and they're trying to buy an annuity, obviously, you see some different behavior on the sales side. I'll leave it at that—“different.” There's a lot of different features and characteristics of the different products that are really confusing. I think where annuities can make a difference in retirement income structures like ours is that obviously it'd be curated by us. We have different expertise that a normal average participant might not have. We have access to resources that the average participant might not have. And I think that we could curate an annuity offering in a way that would be really different than a typical retail environment. Or it could be just embedded into a product that we could do because of our scale and size and because of the partnerships and relationships we have. So I think the nature of annuities within a plan, the benefit would be there, but someone wouldn't have to worry about selecting it or buying it or evaluating it.
Rick Unser: And coming back to one of your point number three's, if I remember correctly, was protecting people from the wolves.
Tony Tomich: When you think about the retail investment environment, I think the annuity part of that environment is really, really tough for consumers. I think there's a lot of, again, interesting sales behavior in that segment. And I think having annuities, again, curated and also priced within an institutional structure would be really, really different than what you might have with your friend down the street who might want to sell it to you.
Rick Unser: So certainly, certain things you mentioned, you guys have the size and scale of a plan that can bring that sort of institutional benefit or that purchasing power to drive some economies of scale there. As you thought about kind of leveraging your plan, where did that take you? What types of conversations did you engage in? How did that process get started to see what was available to you that would be a benefit to your participants?
Tony Tomich: Sure, sure. So, as we went through this process, as we started talking to a lot of smart people out in the industry and learning more about what different options are available, we had a vision of the retirement here that came into focus for us, me in particular. There are three components of that retirement tier structure. One-
Rick Unser: You think like me, you think in threes. I like it. Is that a Six Sigma thing or is that-
Tony Tomich: My grandma always said seconds brings thirds. Maybe that's where it came from. But the three components are, the first is education and tools. Whether it's videos, Social Security optimizers, different kinds of tools where people can use sliders and put in different inputs to do some planning. So number two is the products that would be within the retirement tier, whether it's a retirement targeted fund, managed accounts, slider bond funds, whatever makes sense there. And finally, third is targeted communication and customized communications so that we can touch folks when they're very open and likely to engage with us maybe in the 5 to 10 years before their retirement date.
Rick Unser: This may or may not be the right time to ask the question, but let's see and then we'll figure out where to go from there. What you just laid out, I think, was super helpful. As you think about retirement income and the way you guys have been approaching it, are you looking at this as an out of plan type of, I think you started with “the tools and resources and educational components?” Or are you guys leaning towards or contemplating an in-plan solution where there would actually be something that sat within your investment menu of your defined contribution plan that says, “Click this button or select this option for retirement income,” or is that way too simplistic?
Tony Tomich: No, I think that's a great question. And, again, I'll go back two threes. Within our plan, when we think about plan design, we have three guiding principles. One is cost efficiency, two is best thinking and best practices, and third is ease of use. So obviously, the third guiding principle of ease of use is it's got to be in one place. And so if someone wants to start engaging with us on retirement income, it's got to be on the same platform and it’s got to be easy. Now, structurally, whether it's similar to a brokerage window where you can move into it even though it might be outside structure, that could be a possibility. I've seen some some ideas and some talks about a structure that is similar to that, but for the most part, I'd wanted to be in plan.
Rick Unser: Got it. I guess as I'm kind of thinking back through what you had laid out there--Because I think this is a big debate for a lot of employers out in the market, as well. It's like, all right, well, how much do we really want to embrace this, as you said, if there's not a safe harbor, if there are still some uncertainties out there in the marketplace. So I think there's a general agreement that if people are interested in having their retirement plan be a retirement destination, that videos or ideas or tools and calculators and things like
that certainly make a lot of sense and would be consistent with that.
Rick Unser: I think that the leap that I think some people are not quite willing to take yet or are still struggling with is, okay, well, to the extent that's not enough, or to the extent that we want to embrace that a little more closely, are we now going to offer something that truly resides in the plan or are we going to point them a little bit more directly to an outside resource that maybe there is some type of preferred arrangement, but it's not necessarily something that resides in the plan.
Tony Tomich: And so I think maybe what you're getting at is, is there an annuity marketplace that sits on a record keeper platform. That's not what we want to do. We want it to be in-plan and we want it to make sense so that our folks have distribution options. And right now, distribution options in a lot of plans are pretty limited. And so I think it has to do with making those distribution options more robust with plan amendments, things of that nature. And then also having the products that can turn that big lump sum, that big amount of assets, into steady income for the participant. And then finally, obviously, having products that can help manage longevity risk, which is one of the biggest risks we want to help our participants understand and manage, there’s got to be another component of that, as well.
Rick Unser: I know that as you start talking about this concept of retirement income with employers, I think there's some that are like you guys, embracing it, looking for that path forward. I think there's others that are still pretty hesitant. Let me pivot a little bit. Are participants ready? Are our employees ready to engage in this conversation with their workplace retirement plan or with their employer in a certain way? I mean, I know they're not going to knock on your door and say, "Hey, Tony, I've got a question about my retirement income option here." But I know that that's like, as you've been talking, that's one thing that I've been thinking about, as well.
Tony Tomich: I think if you look at academic research, it shows that when folks get 5, 10, 15 years out, they become more engaged in these kind of topics. I think when you're talking to a 25, 35 year old it’s probably not something that they're really [crosstalk].
Rick Unser: They have other things they are trying to figure out.
Tony Tomich: They're trying to buy a house or start a family or do whatever they're trying to do [crosstalk. Right. So I think it is something that we can engage with our participants about and again, that's why the third component of the retirement tier is that targeted communication and touching them with the right messages. And let them know, “Hey, this is a place that you can stay if you want. Here's some of the reasons why you might want to stay in fiduciary oversight, those kinds of things. And it is something that I think people will be engaged with as they get closer to retirement age. Now, is it something that they want to be engaged with, with their employer as opposed to an outside expert or an outside friend or an outside advisor? I think the research there is a bit more mixed.
Tony Tomich: But I think that's our challenge as the sponsor to provide our participants with an option, provide them with a rationale for why they might want to stay and here are some of the reasons why and let them make that decision. But I think our duty again, in my job as I see it, is to provide them the tools and the options to give them the highest probability of having a good retirement outcome if they choose to stay with us. Some people, their brother-in-law, sister-in-law's an advisor and they're just going to roll over and they're going to go with that person and that's okay. But we want to make sure we put structures in place that does the best or the most amount of good for the most number of folks.
Rick Unser: Perfect segway to what I wanted to ask you next. You guys have a little over 20,000 employees. I'm imagining that there's probably a lot of different thinking about what my retirement looks like, about what I'm going to need for income, etc., etc., etc. So as you're thinking about this, how do you think about getting to one in-plan offering that we're going to put out there that I would imagine, in theory or in concept, is the one thing that you think will benefit the most or have the biggest impact on people's ability to generate income in retirement?
Tony Tomich: Well, I think I probably disagree with your characterization. I think we're going to provide multiple options for them.
Rick Unser: Perfect.
Tony Tomich: I think we'll have one retirement tier but I think we'll have different products for them to choose from. I think a retirement target date trust, I think a managed account, I think latter bond funds, I think also white labeled funds that can speak to different kinds of desires that they have, whether it's inflation, hedging or growth or whatever. There's a lot of different ways that we can approach the product side of the tier. And I think, obviously, there has to be a scale to make it attractive to our asset management partners. But ultimately, we want to make sure that our folks have a choice in what they choose and how they engage with the plan.
Rick Unser: So that is, you take your typical target date fund, and maybe just speaking into some more specific ideas you guys are looking at, "Hey, we're using ABC retirement funds, and we're going to work with the ABC manager to add in some type of guaranteed income component to that."
Tony Tomich: Typically a QLAC.
Rick Unser: So a qualified longevity annuity. So that solves for, "Hey, I don't want to outlive my money."
Tony Tomich: Right. It manages the draw down with the different plan changes that you make as far as distribution options. And then also provides that QLAC to help manage the longevity risk that everyone's going to have to manage in their own retirement.
Rick Unser: If we're all so lucky, right?
Tony Tomich: If we're all so lucky, right?
Rick Unser: So is that something that a participant gets to a certain point in time, and they have to choose one path or the other? Either I'm just going to stick in a traditional target date fund or is this something that you would incorporate as we feel so strongly and passionately about the need for retirement income that we're going to have one target date series and income is built in for everyone?
Tony Tomich: Could be both. I don't think we've really come to a conclusion on implementation strategy there whether there would be a jump over when you hit 50 or 55 or whether it's just a new target date fund that has the QLAC embedded. I don't think we've come to a conclusion on what's most appropriate for us.
Rick Unser: And I think that's a debate that's out of the market. So any thoughts on pros or cons of one approach or the other?
Tony Tomich: Yeah, I mean, there's lots of pros and cons. Obviously, we have a current target date fund suite that we like that has been working great for our plan for a long time. Making a change there, we'd have to get over a very high hurdle. But that being said, having someone switch when they hit 55 or 60, or whatever age is defined, and move to a new retirement target date fund--that might be less attractive to the other manager, because obviously, they want to accumulate assets. And so I don't know if I know the right answer to that quite yet but it's something that we're thinking about for that one specific product. There might be, again, other things--managed account or latter bond funds or white label funds that have different components that could be a choice for folks as they hit that age and they start getting that targeted communication. Then they're like, "Oh my gosh, I need to start thinking about this."
Rick Unser: On managed accounts, I'll have to admit, I've had a pretty big change in thinking around managed accounts over the years. I've been around long enough to have seen what I think were kind of some poor positioning of managed accounts, which turned me off for a long time. And over the last couple years, I've come around a little bit to be a little bit more open to the concept of, okay, maybe there is a role here, maybe there is an option here where they can be a supplement to a target date fund, for example. Sorry, I'm just spewing my information right now. But as you think about managed accounts, how would they potentially fit into this retirement income conversation?
Tony Tomich: I think managed accounts have one advantage in that they link into some of the tools a little more effectively. Where you can go and you can put all your information into a tool, you can auto populate it with your current 401k data and also maybe your pension data, put in your outside assets and do some planning and do some analysis. And I think managed accounts lend itself to that kind of structure with those tools. So that's, I think, a big advantage of the managed accounts. I have varied opinions of the structure within managed accounts and the customization and that's probably for a different conversation. But again, it's something that we think could be an option. There’s some managed accounts that have restrictions where you’ve got to give us all the money, you can't just give us a portion of the money. That makes that option less attractive. And so like everything else, there's pros and cons of all the different options.
Rick Unser: I guess, just thinking about the managed account, is it just that offering a managed account would be something that could help somebody plan their retirement income? Or is there something within the managed account that would be a product or feature or a component of that, which would provide retirement income through some other source that may or may not be available as part of a core menu or-
Tony Tomich: I think it’s a combination of both. So obviously, the managed account uses the building blocks that you have within the plan already, right? And so you'd have to have a building block that would allow for that income component. And so a managed account, again, is, it sits on top of all the other building blocks. So if you don't have an income building block, it doesn't really work that great.
Rick Unser: Have you guys thought about what an income building block would be?
Tony Tomich: Like a ladder bond fund or something along those lines. I think a lot of the retirement target date technology that we're seeing has contemplated that challenge. And I also think, within the space, as people think more and more about this problem in general, there'll be more solutions on that front as well. But I don't think we've come to a final conclusion on what that one building block will be within a managed account structure.
Rick Unser: Got it. And maybe conflating things a little bit here but you mentioned white label funds or white label investments. Would, for example, a ladder bond fund be something that you guys might consider as a white label option or is that something completely separate and different?
Tony Tomich: It might be a component. I've seen some plans that have moved in the direction of having different words associated with different options within the retirement tier. So one is inflation, hedging, one is growth, those kinds of things. And then you put the children funds underneath that will help fulfill the strategy of how you're defining that white label and a ladder bond fund could be a component of that to be an income generating part of it.
Rick Unser: That'd be an interesting word to come up with, laddered bond fund. I don't know how much interest that attracts. But maybe if you guys-
Tony Tomich: I think it's got to be a component, right?
Rick Unser: You got to get together with marketing on that one. Okay, so that's been very helpful, just kind of sharing some of your perspective. And I love the fact that you guys are kind of thinking about this as multiple options because then, you said this very early on, there's a lot of homogeneity-- I don’t know if that was a word you used, but certainly one that comes to mind-- in what that ramp up phase looks like, but the distribution of the deaccumulation can be, and probably is, a much more personal decision that's going to require some flexibility on the employer side, if they really want to meet people where they are. That's another thing that I think is really important in the whole concept.
Rick Unser: We hit on this briefly early on but I think you have a unique role and that you get to spend a lot of time thinking about this. And I guess maybe talk a little bit about that. And then I'd love for you also, just as you're thinking about it, what are a couple things that you've learned or that you might want to impart to others in the market that maybe they've got a benefits team that 401k is 10% of what they have the time to focus on or you've gotten an HR department of one where 401k maybe, unfortunately, gets a little less than 10% of somebody’s focus.
Tony Tomich: Right.
Rick Unser: Are there some things that you've learned in your position that are sort of translatable-- I hate to use the word down market-- but just to employers that maybe don't have the amount of staff or resources or brainpower to really think through some of this in the way that you have?
Tony Tomich: Yeah, no, absolutely. I think the biggest resource for anyone who's coming into this market as a fresh person is conferences, webcasts, webinars, those kinds of things. I think-
Rick Unser: Podcasts…
Tony Tomich: Podcasts, absolutely. Because I know, I think back to when I didn't really know anything about 401k plans-- Conferences and things of that nature are a very efficient way to not only get up the curve on learning technology, terminology, all those kinds of things, but also to meet people and talk to them. I think one of the things that I found the most valuable when I was new to the industry was just talking to other sponsors and talking to folks within the space. You learn a lot. Again, you learn the terminology, you understand what the big issues are, you understand where the value pockets within your own plan are, "Hey, think about this, think about that," where those low hanging fruit are. And I think if I could give anyone a piece of advice that's new to the space is get to a conference and meet some other sponsors because more likely than not, they've been in your shoes, and they've probably slayed some of the dragons that you're looking at.
Tony Tomich: And I think most plan sponsors are more than happy to talk to other plan sponsors who have the problems-- When I go to a conference, all I want to do, really, is hear from other sponsors. What problems are they having and how are they solving them? What partners are they partnering with to solve those problems? That's what I want.
Rick Unser: Absolutely. And that's one of the reasons I was excited to have you on today, is to share with others through this medium some things that you guys have done and contemplated for their benefit.
Tony Tomich: Well, it's great. I've been listening to podcast for a long time and I told my daughter that I'm going to be on a podcast and she thought that was pretty coo, so.
Rick Unser: There you go. Hey, maybe she'll help us go viral. And I think you said it very well, and I've heard this, I can't remember from who, but others who have come before you, and I think that so much of this 401k thing is, yeah, there's new ways to think about things, but there's also just a lot of good foundational knowledge, common sense, that comes along with some of those conversations.
Tony Tomich: There's some base blocking and tackling you can do if you're new to a plan. There's some basic things you can look around and say, “Okay, we need to fix these four things and we need to do them now.” Right? And talking to someone like me, or you or other folks in the space, they know what those are. They know where the skeletons are. And then they can kind of give you a roadmap as to, “Hey, if you're new in this job for six months, these are the four things you need to do. And then you need to think about these other things. And here are the stakeholders you need to talk to and the side you need to deal with your governance. And this is how you need to deal with your plan documentation, blah, blah, blah, blah, blah.” Because we've all been there.
Tony Tomich: And again, I find that most people in this space are very, very nice, very eager to help. There's not really any kind of Machiavellian dynamic to the space. I think all of us are united in our desire and our want to help all of our plan participants have good retirement outcomes. And I think we're all aligned in that desire.
Rick Unser: One thing you hit on there that I'm glad we're going to have an opportunity to come back to is the governance piece. And we get questions, a lot, of should we have a committee? Or maybe somebody who has a committee, should we have a fiduciary committee and an administrative committee? So I guess, as you think through this, or in your present state, what does that governance process look like? How do you make decisions? How do you have that set up? And maybe pivoting back to the retirement income side too, has any of that had to change or be modified as you think about maybe what the future holds as you look at some of these different retirement income options?
Tony Tomich: I'll answer your second question first: No. That doesn't change our governance and our oversight is in place to manage all the different retirement plans that we have. So, just to get back to your first question, governance is very important and I think first thing you have to have, you have to have a committee where you have documented transparent decision making processes. You have minutes, you have agendas, you have materials, and those kinds of things are really important. You need to have a committee charter that lays out who does what, who's responsible for what, what are the things that you're supposed to do when you are supposed to do them.
Tony Tomich: Obviously, you have planned documents that outline how your plan works. You have investment policy statements that define your strategies and how those are supposed to work. So I think having that base amount of planned documentation and governance is… I mean, you have to do that, that's not an option, right? And then moving on to some of the other parts of your governance, what are best practices as you get further along? Hey, you need to have fiduciary training, right? So you have to make sure you understand and your committee understands, when do I have my fiduciary hat on, when do I have my settler hat on. You may be doing those kinds of things. And so there's a lot of low hanging fruit that someone new to the industry can learn from, again, someone like me or you or someone who's been doing what I've been doing for a while, because they've done it, they've already put all those things in place.
Tony Tomich: And so I think one of the protections that a sponsor can create around the plan and around the work that you do on behalf of your participants is to make sure you have clear, transparent, well-documented decision making processes, so that if you do make changes, or if you do try to be innovative, there's a well-thought-out process within your governance that looks at the pros and cons of all the things you do.
Rick Unser: I'm shaking my head and agreeing with you on pretty much everything you said there. I know for some employers, the idea of getting a committee setup, of putting some of these things in place that we just talked about, either is way down the priority list, unfortunately, or is just… you have somebody who gets it and understands it in the organization but trying to get the attention of the stakeholders that should be in the room can sometimes be a challenge. Any thoughts or ideas on packaging the importance of that message up for a peer of yours that might understand it but is maybe having a hard time getting the audience or the attention?
Tony Tomich: One of the most important parts of what our committee does is that we have representation from the big population centers of our company. So we have someone who represents our claims organization, we have someone who represents our operational organization, blah, blah, blah. And so those people are really strong advocates within our governance and with our committees. And I think that if you're at a company where this isn't a priority, you might have a leader that is over 50% of the people in your company and maybe they're not involved in the decision-making process, or at least have a voice in how you're thinking about those things. And so I think a committee structure provides that opportunity for your senior leadership team, especially all those folks that touch all the people, to have a voice and to have a role within how things are put together.
Tony Tomich: And I know at Farmers we have very zealous and engaged management folks who do represent large populations at Farmers and they're in the committee and they bring their advocacy of their people into everything we do in the committee. And so I think that's a really important part of it, a non-technical part of it.
Rick Unser: You guys are obviously very generous with the match and now your profit sharing contribution, or the base, I can't remember the word you used.
Tony Tomich: Base contribution.
Rick Unser: Base contribution that you guys are offering, as well. For some employers out there that isn't the case. They might have a 401k plan, it might be a deferral-only plan. It might have some base level matching but maybe not very generous or not very competitive with maybe what others within their industry or within their peer group are doing. How do you make the business case for how a stronger healthy retirement plan can help with the growth of the organization, the health of the organization, the health of your employees, etc. Because I think that's something that I know some employers struggle with is, "Hey, we really want to get a better match, or we really want to do more for our employees as it relates to this, that or the other thing." But creating that business argument of, if we spend an extra, some odd thousand dollars or millions of dollars, depending upon the size of the organization, it can help us get to the following goals or objectives that we might have.
Rick Unser: Is that something that is, like, in your role today that you've had some conversations with or have engaged with various members of your leadership team or committees around?
Tony Tomich: I think that's an important question that any senior management team has to ask itself and that's, “How do we allocate capital? And where do we allocate capital to?” A benefit plan is an expense that you have to rationalize with all the other things that you want to do and all the other priorities within the company. If you have a company A that invests in its people in a different way than company B, there's definitely academic research and things of that nature that show that maybe company might have lower costs, more efficiency, things of that nature. I think every company needs to make that decision by themselves based on the culture of the company and based on the way they view the staff. So, to your specific question, “I'm a small company, I have a 401k that's off the shelf, my match is maybe pretty small, I want to make it bigger. What's the business case?”
Tony Tomich: I think it has to do with the nature of your workforce and how you want to compete for the talent that comes into your company. If you want to make the benefits package more robust so that you can compete in a really competitive market, it can be one of those things that can be a differentiator, whether it's a 401k, whether it's other kind of benefits, whether health or student loans or whatever. And I think, end of the day, it just comes down to how you allocate capital across the whole enterprise.
Rick Unser: You just mentioned a hot button topic out there in the market, which is student loans. And I think a lot of employers are scratching their heads figuring out, okay, well, we know this is something that our workforces are struggling with and it's not just a millennial thing. Have you guys given any thought to whether it's in the retirement plan or in another part of your benefits package of trying to help your employees that are struggling with student loans or just have student loans as part of their financial obligations?
Tony Tomich: Yeah. It's definitely something we've looked at. We have an overall financial wellness approach to how we do what we do and student loans is a big component of that. So we have looked at it. We have not come down on any one solution for it. But we've looked at all the different offerings out there in the space, whether it's on one other spectrum of education and things of that nature, to the middle of the spectrum where maybe we're providing some refinancing and tools and things of that nature, all the way to the other end of the spectrum where we're making contributions. An Abbott's Lab or a Unum kind of concept. So we're looking at all those. We've had meetings with numerous people about it and it's something that we're, again, looking at. We have not come up with a solution yet. And I think we're probably in the realm of a lot of other companies insofar as what's the right mix for us, for our culture and for our talent acquisition strategy?
Rick Unser: And as the world is also evolving a little bit where it seems like health and wealth, or retirement and health, are kind of blending a little bit more, have you guys started, or are you guys thinking about those as paired at the hip for lack of a better word? Or do you kind of have silos around, “All right, well, this is what we do for retirement. This is what we do for health.” How do you guys think about that?
Tony Tomich: Well, obviously, we have a senior leadership team and an HR team that looks at all benefits. And so I think what their goal is, is to create the most competitive and compelling benefit package for our industry, our regions, etc. So I think that's their primary job. Obviously, there are certain people who specialize in health or people who specialize in the retirement, investment stuff like me. People who are specialized in the HR part of retirement plans. And so execution, there is more specialization. I think when our HR folks think about overall benefit strategy, they look at it from a holistic standpoint.
Rick Unser: Got it. And I know that's something that I think some organizations still struggle with some silos internally. Yes, it makes all the sense in the world, but how do you sort of box some of the walls down or bring some...
Tony Tomich: I think the...
Rick Unser: Conversation.
Tony Tomich: One of the things we have here at Farmers with our pension and benefit committee is that the charter is very well-defined on what its duties are-- health, retirement, all those things are a part of that. And so we do have a holistic view from a senior management team and from the committee standpoint to think about all these strategies in a holistic way. We don't have to worry about silos because that committee exists together. And I think in other places where maybe, some of the things are in Treasury, certain things are over in HR, no one ever talks, that kind of thing. We're fortunate that we don't have that structure here.
Rick Unser: That does happen and that is a reality out there in the market. As we start to move to a close here, let me give you just kind of a big picture question here to maybe marinate on for a second. As you think about some of the things we’ve talked about, with retirement income and getting people kind of to the path of having good retirement outcomes, is that a, quote unquote, fiduciary responsibility that you guys look at? Or is this, “Hey, this is more of a cultural commitment that we've made to our employee population.” Is it a little bit of both? How do you think about that? Because, I think, as I'm thinking about this and reflecting on some of the stuff you've said, it seems like those two conversations kind of dovetail and weave in and out of each other and have some different considerations to them.
Tony Tomich: Right. I look at any kind of plan structure, any kind of plan change, that's a settler decision. It's not a fiduciary decision. Now, how you do what you do once you make settler decisions, there can be fiduciaries duties involved in that. Are you doing it in a transparent, well-thought-out way? Are you making sure you take your plan participants and their beneficiaries, take their interest, first and foremost, in the things that you do, things of that nature. Those are fiduciary responsibilities but any kind of innovation you have within your structure or the way you think about the plan, those are settler decisions. And so, I think there's a pretty bright line between those two.
Rick Unser: And that's a really interesting point, because I will say, and I've had some conversations just on my own, I've had some conversations with others on the podcast, where I think a lot of employers in the litigious environment that we're in right now with, well--, if you pay attention to this stuff-- you see a lot of headlines about a risk of litigation and settlements or other big institutions or companies being targeted. And I think there's some employers, especially as you move down market a little bit, they get really concerned about, “Okay, well, if we pursue this, is this putting us on someone's radar screen that we're going to get sued in a couple years? Or if we make this change, which maybe it is something that could really benefit our population, but we've now kind of put ourselves outside the box a little bit.”
Rick Unser: So as you were saying what you were just saying there about innovation, and that being kind of a settler decision, are there any thoughts that you'd leave with other employers about kind of separating that innovation from fiduciary risk?
Tony Tomich: I'd love to say, “Do one, two and three and your litigation risk is gone.” I just don't think that's possible in today's environment and the way we have certain players out there in the market where litigation is a constant part of our industry. And so, is there innovation that you can take on that will make you look different than other plans? Absolutely. Are there benefits of that? I think there are in a lot of cases. When we'd speak with our ERISA attorneys and think about different changes that we make to the plan, their mantras, “Transparent, well-documented, make sure that all the decisions that you make are thoughtful.” And again, in your minutes, in your materials, well-documented and transparent. And I think... But our committee is aware of these risks that exists and it is a litigious marketplace.
Tony Tomich: And our innovation and things that are outside the norm, could it put you on a radar? I think it's possible. But I think one of the things that I've seen, a study I've seen out in the space, is that I think size is the biggest determination on whether you get sued or not. And I think the DCIIA study came out last year that did a big study on all the litigation. But they've moved into the academic realm and they were looking at supposed or alleged abuses there. But I don't know if there's anything I could tell any sponsor to say, "Hey, you do these four things, you're okay against litigation." I don't think that exists. At the end of the day, you have to make decisions that are consistent with your culture. I think you have to make decisions that are well-thought-out, well-documented, and that fit within what you're trying to do with your people. And your senior management team has to be on board and has to be supportive and has to be, again, well-thought-out and make sense to what you're trying to do.
Rick Unser: That's a great summary. In all the stuff that we've kind of talked about, is there anything that we didn't cover or anything that we kind of left open that you want to hit on before we wrap up?
Tony Tomich: No, I don't think so. I mean, obviously, I'm passionate about retirement income. I'm passionate about retirement readiness in general. And I just want to thank you for providing me the opportunity to talk about it and to provide a forum to help people, like me, exchange ideas and do those kinds of things. So thank you.
Rick Unser: Absolutely. This has been great. Thank you for taking the time and certainly down the road as you guys tackle some other things, would love to have you back to get an update.
Tony Tomich: We look forward to it. Thank you.
Recap, Highlights, and Thoughts
I am very excited to bring back our sponsor spotlight theme on the podcast! Tony Tomich, the Head of Pension Investments at Farmers Insurance® shares some great perspective on the company and their retirement plan. We had fun digging into how their plan works, how it helps with recruiting and retaining talent, how decisions are made and much more. One major theme we dig into is the concept of retirement readiness and retirement income. Both hot topics in their own right and really impactful to hear how Tony thinks about both. Finally, despite Farmers® being a very large company with a very large retirement plan, there are plenty of great take aways for companies and plans of all sizes.
We have several exciting episodes coming up where we will welcome back some prior guests, tackle new topics and have all sorts of retirement plan fun. If you have an idea for a topic, guest or question we should tackle on the podcast I would love to hear about it. Just shoot me an email to email@example.com.
Thanks for listening!
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