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An Online Tool to Manage DB Plans

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Have you contemplated managing defined benefit plans but recoil at the thought of working with pension attorneys and actuaries? Well, CCA Small Business Group in Chicago recently launched an online tool called MyMax that allows advisors to help self-employed clients defer up to 100% of their annual income to a DB plan without using actuaries or lawyers.

CCA Small Business is an offshoot of Chicago Consulting Actuaries, which provides actuarial consulting services to huge companies like BellSouth and SBC. CCA was launched “to attack the actuarial field in a different way than the big guys,” says Jeff Stevenson, CCA’s president. CCA’s main goal is to “use technology to make retirement plans more understandable to the consumer, benefits manager, or employer,” he says–and in MyMax’s case, for advisors as well.

Helping small businesses manage DB plans is a “hot spot” now, Stevenson says, because small businesses, like their larger brethren, need products and services designed specifically to fit their needs. The problem is that small firms can’t afford to hire consultants to design such products. “If you’re a small business, it’s not that easy to justify the economics” of hiring a firm, he says. “We think the benefits [for smaller firms] are there, but the question is how to deliver them in an effective and economic way.” The most effective and cost-efficient method is to “use technology to automate the process and then use effective distribution channels,” Stevenson says.

MyMax is a fully automated process that allows the advisor not only to set up model DB plans online, Stevenson says, but also “apply for the plan and administer the plan online–without maybe ever talking to an actuary.” Pioneer Investments and Medavante recently unveiled single-person DB plans as well, but Stevenson says both products are “front-end modeling tools” that aren’t automated and still require the advisor to interact with actuaries.

Jeff Merriman-Cohen, managing director of Merriman Capital in Seattle, calls MyMax user-friendly and says it offers “a much more seamless, direct connection between the advisor and the administrator.” The actuarial work, he says, “is built into MyMax, and it’s transparent to the advisor.” Like many other advisors, Cohen has refrained from jumping head-first into managing lots of DB plans (his firm handles a few such plans now) because it’s a complicated process. The fact that MyMax takes care of the actuarial legwork is a welcome service for any advisor, he says. “The last thing we want to do is communicate with actuaries. It’s not our language.”

A Solution for Sole Proprietors

Stevenson says the small DB plan market can be broken into two categories: sole proprietors and firms that have from two to 100 employees. For now, MyMax allows advisors to set up DB plans for sole proprietors. Automating a service for firms with more than one employee is more complex. With one-person DB plans, “you don’t have discrimination testing, or a lot of IRS compliance issues to deal with,” Stevenson says, “so you can set up a DB plan that looks and operates like an IRA.”

Advisors who are using MyMax now give it two thumbs up, Stevenson says, and are anxiously awaiting a version that can service multiple-employee DB plans. Such a service is on CCA’s agenda, and Stevenson says the company hopes to “roll out something next year.”

MyMax provides small business owners with the high deferral rates that DB plans can provide, and “gives the advisor control over their clients so they’re not dependent on a third party.”

If an advisor has a client who wants to set up a DB plan, the client can also contribute to a 401(k) plan, but not to a profit-sharing plan, Stevenson says. A client who is 50 years old can defer up to $100,000 to a DB plan annually–a pretty sizeable amount. In addition, the client could also contribute up to $13,000 to

a 401(k).

Planner Cohen says his firm serves clients with a net worth between $250,000 and $2 million, and in many cases, they just aren’t looking to set up a DB plan. In order for a client to “take full advantage” of MyMax, he says, “they have to be ready, willing, and able to save in excess of the $40,000 to $45,000 that you can save in traditional plans, like profit sharing and money purchase type plans.” The perfect candidate, then, has a net worth of $2.5 million or more. That said, Cohen is noticing a “growing need” for DB plans among his clientele, and says, “We will likely utilize MyMax on a regular basis.”

In designing MyMax, Stevenson also wanted to ensure that advisors and their clients had “great” investment options. Clients can choose from 70 mutual funds from fund families including PIMCO, T. Rowe Price, and Vanguard–or the advisor is offered a “full brokerage account,” Stevenson says. (A list of the available funds is at All the funds are institutional-class funds, so they have low expense ratios and fees are transparent. Moreover, there are no 12b(1) or subtransfer agency fees.

Advisors are charged $500 to set up a DB plan through MyMax, plus a $1,500 annual fee. CCA “tacks on 20 basis points” to the annual fee, Stevenson says. The annual fee plus the 20 bps covers the use of the system, actuarial certification, all the services needed to administer the plan–including “links to the asset pools”–plus the filing of Form 5500 to the IRS. MyMax “knows when the person makes their contribution [to the DB plan], prepares the 5500, and electronically files it with the IRS, sending a copy to the client,” Stevenson says. The advisor is then free to set his own asset management fee.

Washington Bureau Chief Melanie Waddell can be reached at [email protected].


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