March Top Advisor by Participant Outcomes (TAPO)—Brent Sheppard

February 27, 2021

Private Equity Opportunity

PRIVATE EQUITY IS KNOWN for taking over, cleaning house, and making the targeted company more efficient to increase profitability. Therefore, retirement plans and planning aren’t pressing priorities, but a fiduciary responsibility still exists, which means opportunity for Brent Sheppard.

“We have a strategic program focused on partnering with middle-market private equity companies, particularly the ones taking majority control of a company,” Sheppard, a partner with Marlton, New Jersey-based Cadence Financial Management, explains. “We provide fiduciary guidance and support through and after the M&A process when they’re acquiring new portfolio companies.”

Plans range from $1 million to $40 million in size, with an average of approximately $10 million.

“It helps the private equity firms in knowing they have someone competent protecting their partners and their board,” he adds. “But importantly, it’s a good thing to get the employees of the portfolio companies saving for retirement and having somebody in there to advocate for that benefit.”

In 2018, Sheppard and the Cadence team assisted a private equity firm with an asset purchase of a manufacturing company, which resulted in a spin-out of certain employees and their retirement plan balances.

“After due diligence on the larger plan, we realized that the smaller subset of employees under the new entity could benefit from a new vendor and overhauled investment line up, resulting in significant fee savings when compared with the larger plan from which they were spun out,” Sheppard explains.

Redirecting resources

A year of employee group and one-on-one meetings did little to increase participation, and a lack of employer match once the spin-out was complete also didn’t help.

However, in late 2019, Sheppard was notified that the company saved some money on their health benefit spend, which they now wanted to apply to their retirement plan.

“We ran several plan design optimizations for a new match and settled on a formula that maximized the targeted employer spend while incentivizing employees to save a higher percentage of their pay. The employer also took on all retirement plan expenses, such as recordkeeping and advisory fees.”

They also implemented automatic enrollment with an automatic escalation to capture the full match, spread across 6%, and an employee education campaign was rolled out a month before the changes were implemented.

“We could feel some initial push back from employees,” Sheppard notes. “But once they were taken through a full education program on retirement savings, coupled with employer dollars and direct financial advisor support, the changes caught on.”

The results were impressive, to say the least—the plan went from a 36% participation rate to over 97% participation in the month following the changes. Roughly a year later, it’s holding steady at a 95% participation rate.

“Profitability is up for this year, which is more good news, and the company will likely increase the match and add a profit-sharing component as well,” Sheppard concludes. “The partners and board of the private equity firm can sleep well at night, knowing there are proper delegation and oversight of the company’s fiduciary obligations to sponsor a retirement plan.”

Brent Sheppard is a partner and financial advisor with Marlton, New Jersey-based Cadence Financial Management.