Relevant Irreverence: On the front edge of retirement plan servicing

We can’t do better than this description of our friend J.D.: “J.D. Carlson was raised in the wild by a pack of 401(k) plan administrators and his first words were ‘annual defined contribution limit.’  Mr. Carlson (nobody calls him that) knows 401(k) inside and out. He has been involved in all areas of retirement plans from sales to day to day administration.  He is the CEO-President of Plan Design Consultants, a Third Party Administration firm founded in 1975. In fact, when J.D. was four years old he gave his father the idea of starting a TPA shop and then went on to take over the reins some 30 years later.”  

We like to bring the public and private sector together to share good ideas. Today we’re mashing up the realities of small plan servicing in a technically advancing world with the onset of Auto IRAs. Let’s see if the result is more like guacamole (which we love), or English-style mashie peas (no love).

J.D. is also the host of the hit show Retireholics alongside Chad Johansen, Justin MacNeil and Mark Palmini, bringing together entertainment and retirement plan learning as they “change the 401(k) industry one beer at a time”.  For more great mashups, you can find the show at www.retireholics.com.

J.D., you wear many hats. Tell us about your day job as CEO of Plan Design Consultants.

Yes! We are a third party administration firm, doing both plan design and plan administration work for about a thousand clients. Our average client is probably about one and a half million dollars in assets, and maybe 35 to 40 participants. We have much larger clients, and smaller ones, as well. We work closely with the retirement plan advisor community to service these clients.

My role really is making sure we can keep the lights on. My day to day probably looks like the day of most small business owners. I keep an eye on the money coming in, and the money going out and where things sit. I work with our sales team on how our growth is coming along.

And here's the cliché part, but it's very true. I’m focused on empowering everybody at the firm, Specifically for me on a day to day basis this includes the managers of the different departments. I feel like it's my responsibility to be checking in with them, getting their feedback on things, supporting them to keep pushing forward, to enjoy their jobs while evolving and making changes.

We get that collaborative vibe from you.

It's a lot of fun to lead this way.

You also host the nutty bro-style, weekly streaming program, Retireholics.

Yes, I've heard ‘sophomoric,’ I've heard ‘childish,’ I've heard ‘inebriated’! We’ve hosted our weekly show every Thursday for six years. At the core of it, if we put the fun and games to the side, it's us collaborating with industry leaders to share their expertise and current thinking.

These are folks you might otherwise see on a panel or behind a podium. On Retireholics, we're drinking beer and other beverages and we're hoping to get a different perspective in a looser environment. Maybe they're acting more authentically or being more transparent. They may say something that's less rehearsed and those are fun moments for us. I would also argue that we want to push the questions a little harder, and ask the question that the audience really wants to know, as opposed to the one that gets a canned answer.

It's a lot of fun for us to go deep on 401(k) in ways that are relevant to financial advisors and industry professionals. I'm always hoping that someone in our audience is thinking, Wow! I’ve never heard someone talk about it in that way. And yes, the wrapper around it is this fun, irreverent beer drinking. There might be some obscenities flying here and there. And we're talking about 401(k) in a cool kid  slangy way which, I honestly think, is probably how industry people talk about 401(k) when they meet up for a beer at a conference. It's this unrehearsed, really natural, passion for what they do. And that's what we're trying to capture on this show.

That's awesome. Through both your work and your program,  you are exposed to plenty of challenges and innovation. Let’s talk about innovation.

Tech, technology in general, has been freaking amazing over the last 20 years. Speaking as someone who runs a TPA firm, it's night and day in terms of how we do our internal work. One simple example is DocuSign, which offers the ability to electronically sign your plan documents. I've gone through the client experience recently to vet this and see what it feels like. I walked away just ear to ear smiles. It’s a huge improvement over the old days of printing, signing, scanning, emailing and all this  jazz.

The technology around gathering and scrubbing census data, the technology to find things that are incorrect or don't match up to last year's results is phenomenal. I could go on about all of the software and technology that allows us to do things more efficiently. To me this is where innovations really are moving the needle. I am a big, big fan.

We like it too. We’ve seen a few interesting ideas proposed legislatively, including some that have passed and become law. Is there anything in that bucket of goodies that you particularly like?

I love the incentives for employers starting new plans. The government included these in the SECURE Act and SECURE 2.0. I think those are phenomenal. Those are great fuel to the fire of creating new plans, and I know we're all interested in closing the coverage gap.

The state Auto IRA programs are also helping close that gap. I know it didn't go through, but related to coverage, I would love to see a federal mandate. I know there was a lot of talk around that. Brian Graff had gotten us all excited and in a tizzy and I was really looking forward to seeing what that might look like and what type of impact that might have. So I'd love to see that conversation continue.

All in all, I'm happy with the way the government's paying attention to retirement plans and working to change and evolve things. It's been pretty good lately, in my opinion.

What are some of the thorniest challenges you are seeing today in the retirement savings environment?

Maybe selfishly, what's really impacted me negatively over my entire career is this concept of ‘low fees are always superior,’ or there's something cheaper out there.

Don’t get me wrong. I'm an advocate of prudent low fees. I'm just not a fan of  haphazardly running around advertising “cheapest is best.” In today's world, we see this from disruptors. We might even, no offense, see this from the state run programs. It’s this concept of, Hey, it's cheaper, which to me is making accusations that our industry is somehow not prudently priced. I don't agree with that concept or that narrative.

I believe that our industry is, in fact, competitively priced. Let me put it this way, I would know exactly how to change my business model to reduce our fees to a very low rate. I don't do this because I don't think it's what my advisor partners or my clients would want from my firm. I think they'd want to pay a little more to have me cut fewer corners and do things a little more professionally. We strike a balance. So a strict focus on low fees bothers me!

We agree that low price does not always equal best service, or even best value.

I could go so far as to say, when you push for really low price -- and this is me speaking as someone who knows how the engine is built when you run these things -- you're inevitably not just creating less value. I feel like you're creating liability and you're creating headache for your clients and you're creating potential for them to trip and fall and hurt themselves. And you're inevitably relying on the client to be responsible for data and information and accuracy and that will impact all levels of plan operation.

So I'm not a fan of it and I think we need to be more careful as an industry. We need to be more calculated in terms of the type of message that we want to deliver to the public. In our industry I think we can be shortsighted, and in our attempt to win new business and excite our consumer, we use low fees and we use efficiency and models that maybe aren't the best models in the long run, and we could end up hurting ourselves a few years down the road. Anyway, I'll put my violin away.

You are headquartered in a state which has an Auto IRA program – CalSavers. We have seen that in Auto IRA states new plan formation goes up. What are you seeing?

We are the perfect experiment, right? In California we had three different deadlines, depending upon the size of your company, where you had to have a retirement plan in place, or sign up for the California state run program.

So there was massive, massive push for you, the employer, to take action. Before anyone could analyze the Form 5500 data, we at my company could see new plan formation happening here in California. We were on the front lines of this action. It was clear to our sales team that this was a conversation that their advisors were bringing to business owners, that then were bringing my guys in to help close the deal.

So we knew it from the get-go. Like, wow. I think we were naïve to begin with. When we first heard of state Auto IRAs, our first reaction was “this looks like competition.” We thought, Why are the states getting into our game? We were almost defensive.

Now you look back on it and we learned this really quickly: it's insane the amount of new business that we've been doing in California because of the state requirement to offer a plan or facilitate CalSavers. So I'm a massive fan.

To say it more eloquently. It's great to see the retirement plan coverage gap be reduced in our state. And personally, it's just been a phenomenal fuel to our business. And I know that the CalSavers people are proud of that too. They love the fact that more 401(k)s have been created because of what they've done. So it's been a win-win. I'm a fan.

We’ve arrived at our fun, final question. You're a self-described husband, dad, surfer-dude. How are the waves this month -- and have you taught your daughters how to surf?

Well, coincidentally, I just spent a week in Nicaragua on a surf trip. We did nothing but eat, sleep and surf for a week in northern Nicaragua. The waves were absolutely all-time perfect. The only problem is, I am 51 years old. Although I surf just about every day, I decided 20 years ago that I did not want put myself in treacherous, scary surf conditions. I just didn't have that confidence or that swagger anymore.

On this trip, I put myself into some very big waves and some very scary conditions and came out alive and had a great time. So that's my surf update. 🏄🏼

I've got two daughters and a son. My 24-year-old daughter is graduating college now. I tried to teach her to surf when she was about three years old. Scared her away from the sport forever. Did the same thing with my 19-year-old daughter. I tried to teach her very young, pushing her into big waves and cold water, and she wanted nothing to do with it and moved on to become an aspiring rock star. My son the same way. I made the biggest mistake any surfer out there could make: I tried to push my kids into surfing when they were very, very young and I repelled them from the sport. So I'm the only surfer in the Carlson family.

Something about that story is hurting our feelings right now. But we’re happy to know you made it out of your adventure alive.

Me too.

J.D. please give us a shameless plug!

Yes! Thursday nights, 4:30 Pacific, Retireholics. Come join the fun. It's all the people that join the chat bar that make it a ton of fun. If you're a 401(k) person of any shape, size or form, you need to be hanging out with the Retireholics on Thursday nights. We'd love to have you.

Thank you, J.D. Carlson. We appreciate your fresh perspective and unstuffy approach.

Want more? You can connect directly with J.D. Carlson here. You can follow J.D.’s work at Plan Design Consultants and join in on the nutty Retireholics show. You can also connect with J.D. on Twitter.

This piece was featured in the May 5, 2022, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.