Episode 69 – What is a record keeper?
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Well, if you’ve ever gotten an email or read a news story from us about DCP or Plan 3, chances are you’ve seen the name Voya Financial in the last couple of years. They are our current record keeper, but you might be thinking what exactly is a record keeper? So, we’re happy to welcome Malia back to the podcast.
Malia, you manage the Deferred Compensation Program and work very closely with Voya. Can you help us understand what a record keeper does?
Malia
Yes. Thank you, Jenny, and thanks for having me. It’s a really great question. And I think before we talk about what a record keeper is, let’s talk about which of our customers use a record keeper.
So, anyone who is in the Deferred Compensation Program, whether you’re actively contributing. A beneficiary or someone who received funds as, you know, from an ex-spouse or something, and you have money in there, you would have a relationship with our record keeper. Likewise — so any of our Plan 3s — you have the investment piece of your retirement and that is also with our record keeper.
And just to kind of give people a little bit of size and scale, we have about a million customers just shy of that. And about 400,000 of those have a balance in one of our five DC plans. So that’s one of the Plan 3s, or Deferred Compensation Plans. And DC is short for defined contribution.
So, definitely a lot of people who deal with our record keeper, but like you said, may not know who they are. They get the letters or emails that might say Voya Financial, and they might wonder “what the heck is this?” So, bottom line is they help us assisting our customers with their defined contribution.
So, a lot of what they do is transactional stuff for our customers. So, if you are in your Deferred Comp Program and you want to increase how much you’re putting in each month, because that’s what everybody here should be doing is increasing their defined and Deferred Comp, contribution. You’re going to have to do that with Voya. You’re going to give them a call or go online, make that change.
Likewise, when you’re ready to take your money out, you are at retirement time and you’re wanting to take money out, initiating that withdrawal process. Filling out the application that you need to do that is with our record keeper.
They take just shy of 20,000 calls every quarter for us. So that’s 20,000 interactions that our less than 40 people in our call center don’t have to do. There’s no possible way we could take that level of volume on, in addition to doing all the stuff that we do on the pension side. So they really, really are big on helping us with all of those parts.
Seth
I think one thing I wanted to add, oftentimes when people think of the record keeper, they think of the investment accounts and really what our record keepers have done and continue to what Voya does for us is that they’re managing the infrastructure, the pipes of the system, for the investment account, the website, the portals, the behind the scenes mechanics that allow the tracking of investments, the distribution of investments, the collection of investments.
That infrastructure is what they specialize and build out. And there are a number of record keeping companies in the country that that provide this business and has worked with many of them over the past number of years. But I know Malia, one of the things we wanted to make sure we talked about is what a record keeper doesn’t do, or what a record keeper isn’t.
Malia
Yeah, that’s a really great question. And I think it’s confusing for a lot of people because you’re getting information from both our record keeper and DRS and you’re like, “who am I supposed to talk to about what and who does what?” And there’s a lot of complex relationships in managing retirement plans. And so, I think the first and foremost thing I want to say record keepers do is they are not our investment managers, they are not financial advisors, they’re not providing advice, nor do they pick the fund line up.
That’s probably one of my most common calls. “What is Voya doing” or “what is so-and-so doing with my money?” And it’s like, well, they’re actually not doing anything with it. They’re not the ones who picked that line up. In fact, they don’t even have your money. That’s with the treasurer’s office. And so, they are just kind of recording, quite frankly, record keeping, your transactions, your balances, the things that you’re doing, kind of all those on paper statement type things.
So, for us, the people who manage the investment programs are the Washington State Investment Board. We are very unique. We’re one of the few in the country that has a board that does that. And they are the people who actually pick that line up that you get to select the different funds from. Voya does not do any of that, nor does any other record keeper that we’ve had.
So, I think that that’s very important to mention. And the other thing is, they are not the ones who are managing any of our plan design. And what that means is the structure, the rules, how things work. They are not the ones who are deciding when you can and cannot take a distribution. Nine times out of ten, that’s actually the IRS deciding that.
But they are not the ones who say this is the process that you have to go to. They’re not the ones who are saying, hey, this is a TAP annuity. That is all us, Washington DRS. We are the ones who are making those decisions and determining the plan, structure and design. And we tell our record keepers what they need to do.
Jenny
That’s really helpful because you see these commercials on TV for Voya, and they are a huge company. They’ve got part of their company does health care and all kinds of offerings. You can even buy stock actually, in Voya. Their New York Stock Exchange code is VOYA, if you’re ever curious. That’s an important distinction that it’s like they’re not the ones that are picking the funds. They’re really just, like you said, keeping the records.
Malia
And it’s confusing because unfortunately, there are record keepers such as Fidelity or Vanguard who do both across their business. So, they do have a portion of their business where they do exactly those kinds of things, and then they have recordkeeping or, you know, Nationwide, that does insurance. Obviously, we’ve seen the commercials, but they also do record keeping for retirement plans.
So even though a lot of them are these really big companies that do things like you said, Voya also does health savings accounts. Some people may have them as the administrator of their HSA, so it can be very confusing for people when they see these names that they’re used to associating with doing something else. But for DRS purposes, they are just doing our record keeping and a lot of the customer service as well.
Jenny
One of the things I wanted to mention that we work with Voya is from an educational standpoint. So, I work on the communications team. So, we work very closely with them on sending out these email messages that you get about maybe they’re turning 50 this year, and now you can put more into your DCP account or to all of those folks that are new to DCP, they get the welcome email and we work very closely with them on what that message is and how that’s being educated to the public.
As well as another big one that we do is sending out emails to folks that are in Plan 3 and letting them know that their plan does have those two accounts, those two pots of money that you can draw from. So, they’re a great resource for us to be able to get this information out to our members.
Malia
I think that’s a really excellent point, and something that I think is really interesting about record keepers. A lot of people may not be aware of is; One: A lot of them have these kind of educational institutes as part of their business that they do where they do research and find out what are trends in the retirement industry and how can we communicate that to people.
And they do different campaigns. And so, you’re exactly right. A lot of it is education, helping explain things. Other record keepers will do webinars that people can attend to, just learn about retirement in general. And so, a big part of their business is that education piece. And the other thing that’s really beneficial to us is, you know, we’re not their only customers.
They have many government plans. In fact, there’s some people sometimes they call us confused because they came from Oregon and now they’re here in Washington and they’re like, “but I already had something with Voya” and it’s because they’re the record keeper on that plan. But it’s like, “well, I know it’s still Voya, but we’re different.” So, that can be very confusing.
But because they do have all those different plans that they serve, we get a lot of really interesting insights, too, of what other states are doing and what works, and that helps us with our communication. So, they’re an excellent resource in that regard as well.
Seth
I think one of the things that people oftentimes know about our record keeper is where they’re located. It’s very odd to me, but oftentimes when I run into someone out in the community and they learn, I work at DRS, they’re like, “oh yeah, I get those letters from Connecticut” or I get those letters — our previous record keeper was from Colorado — and they’re like, “I get these letters from Colorado.”
And then I immediately know, “oh, this is a Plan 3 person, or a DCP question.” Like, that’s where my mind goes. And for whatever reason, I think because it comes in the mail and so you can see a return address or a postmark or something like that. So that is just something for people to know. And it’s a helpful trick to know, like, “oh, this communication is coming from the record keeper or this communication is coming from DRS.” And Jenny, as you were mentioning, in a lot of ways, DRS works with the record keeper on some specific communication.
But as Malia was saying, there’s a lot of standard stuff that they’re also providing and sometimes they have to provide that notice because the IRS requires that.
Malia
That was a really good point because as you alluded to, these are multibillion dollar businesses. I mean, these are not little, you know, a mom and pop shop of ten people just running the books in the back end here. These are big businesses that have their own compliance departments and their own rules and regulations they have to follow, and sometimes they can be a little different than what we would find acceptable.
And so, exactly right, Seth. That’s why sometimes you get these emails or your statements and you may think, why is it worded this way? And it’s because they have these compliance standards that they have to go through in order to put them in. A lot of people, understandably so, very hyper vigilant about fraud in today’s day and age.
And it is very weird to get a letter from Connecticut about your Washington state plan and then have a phone number where the first thing you get is a, you know, automated voice saying, what’s your Social Security number? And so, I can see how that could feel really uncomfortable to people. And so that’s why I think this is a great episode for people to listen to and for people to understand what is a record keeper.
Yes, they are our partners in administering this plan. They are legit. They are sending you this statement and we’ve contracted with them to do this, which I think, Seth, you were going to chat a little bit about kind of how that contracting works.
Seth
Yeah, they are our partners in this, but they are a contractor of DRS. And in Washington state we have to follow state procurement law and every so often go out for what’s called the request for proposal, an RFP and rebid these contracts. And so, every few years, we look at the entire marketplace of record keepers and all the interested record keepers provide a proposal to DRS and we evaluate it.
One of the things when I talk to customers, I try to make it really clear we are not just selecting the lowest cost provider. We are looking at overall service. We want to make sure that they have call center hours that match with what our business hours are. We want to make sure that they are providing a level of service, so they’re answering calls within a certain amount of time, and we have standards that we set up with them.
And if they don’t meet those standards, they have to pay us a fine. This part of the contract, there’s a whole process. And Malia and I and our teams and a number of other teams within the agency work closely. This is one of the biggest contracts DRS has and we take it really seriously.
Malia, do you want to talk a little bit about how the record keeper is paid as part of this contract? And just so people have a little bit of a better understanding of how the contract works in that way.
Malia
Yeah, I think that’s a really good question, because again, I think especially with some record keeper names out there, very synonymous with brokerage accounts, people immediately think that they’re getting commission or they’re taking money based off that, and that’s not how it works. And so, we negotiate as part of the contract what our fees are going to be, which I’m going to shamelessly plug, we’re updating on our website so people can go read all of that information out there if they want to know more in depth and what I’m going to cover.
But they don’t make commissions on participant investments. They don’t make money in that regard. They get paid fees based on the negotiated contract for the services that they provide. And so, depending on if you’re a plan three or DCP, you’ll see that on your statement or adjusted in your share price. And so that is something that I think is very important for people to know is so it’s just that exact fee based on the services that they provide.
Other than that fee, if you want an expedited withdrawal, you might pay them an extra fee for that processing. But other than that, that’s how they get paid. And to your point, they also want to provide very good service to our customers and make sure people are getting what they need from them because they don’t want to get fined for what they’re getting paid, they don’t want to have to pay us.
And so, it definitely helps create that system of accountability with them. But I think it’s very important for people to know that it’s not like your typical brokerage account, where you feel like people are trying to sell you or say, “hey, you need to keep your money here.” It’s not a commission based kind of thing. All of their people who are answering the phone calls, they’re not making any more money based on what you do with your money.
Same thing with all of us here at DRS. And so, I think that that’s a very important distinction to understand, especially if you are in a plan that has a record keeper that also does that kind of business.
Seth
It’s a really good point because there is a cost associated with providing this service. There’s a cost associated with having a DCP account that somebody has to build and maintain that website and answer your phone call when you when you call in and, and send you that payment, whether it’s a check or a direct deposit, there are costs associated with those services.
And so, making sure that you understand how those services are being paid for, no matter where you have your different account.
Malia
Exactly right. They’re not volunteering to answer those 20,000 phone calls every quarter for us. They are compensating their employees. They are a business, and they’re getting paid to do those things. Or, you know, like you mentioned, they’re East Coast. And so a lot of them have to work special shifts to accommodate our time zone.
Jenny
So Malia, you kind of mentioned obviously about this relationship. We all get together on a monthly basis and talk about issues that might be happening. Would you give us an example of what some of those recent issues are that you’ve been working through?
Malia
Yeah, that’s a really great question. I’m kind of in a unique position. I probably work with Voya more than I work with DRS people. And so I want people to know, we hear you. When you call us and you have these complaints or maybe praise, because I do get that, where customers praise and I share that with them.
But, you know, maybe there’s some experience you’re having that’s not going the way you think. And so we look at that in my team and we say, is this an opportunity for education on the DRS side of house? Because sometimes we need to better understand how they’re doing their business. For instance, it wasn’t really well known that Voya actually can’t email customers.
So, if you call and say, “hey, can I get a copy of my 1099 emailed to me?” They can’t do that. They actually have to mail it to you. It’s one of those compliance rules that we were talking about earlier. So, helping employees understand they can’t. But we can and we can help you with certain things and understanding kind of who does what is really something that we work a lot on.
And then another example that I wanted to provide is we hear people when they say things are confusing or they’re unsure. One of the things that I worked on with Voya not that long ago is and we have a great podcast episode about this, about what’s the beneficiary versus a survivor. And because a lot of these record keepers really only deal in defined contribution plans, that’s like your Deferred Comp, the investment side, things like a survivor are completely unknown to them because that’s very pension retirement benefit speak.
And so having the opportunity to educate them and aware about our terminology and when they can send customers to us for help, is another example of things that we’ve worked on with them to help clarify and help people understand who does what. And so that way, when you call us asking the exact same question, “who am I supposed to talk to?” We can guide you to the right place and make sure you’re going to get the assistance that you need.
Seth
I think it’s just such a good point. I looked up some data before we started this episode, and I think I have this number right, that Voya paid something like 160,000 payments to DRS customers last year, and some of those people may have received more than one payment a year, so not 160,000 people. But, you know, with that many payments, things can go wrong.
And both Voya and DRS work together to try to make sure we get those mistakes corrected. Nobody is trying to pull a fast one over somebody. I think sometimes, especially people that work in the public sector, may get a little bit nervous or feel a little bit jaded against private sector companies working with their retirement. And so, we work really hard with Voya to get those issues corrected. That’s a big part of what Malia and her team do.
Malia
They really are our partners because quite frankly, we couldn’t do it without them. We just don’t have the capacity to take on those 160,000 extra transactions.
Seth
Or the expertise. This is what these companies do. You know, DRS pays pensions, we don’t record keep investment accounts and have never done that.
Malia
I think that’s a really great point, because sometimes when there’s federal legislation, you know, like the SECURE Act that come out, we actually turn to them sometimes and say, “what are you doing? How are you implementing this? What education are you giving?” Because they have entire divisions that just can work on that and get that information and that data.
And they know they better get it right, because they have thousands of customers that they have to implement this one legislation for. And so, they are a great resource in that regard. And because we just don’t have the manpower or the ability to do a deep dive at that level.
Seth
Malia, was there anything else you want to make sure we cover in this episode?
Malia
You know, we get customers sometimes who say, “well, why can’t I just talk to you about that? Versus “why do I have to go talk to someone else?” And we don’t have access to their systems. I can’t see what they see, just like they can’t see what we see. So, you really do have to talk to both of us sometimes.
You can’t talk to them about your retirement pension because they can’t even see who your employer is. They can’t even see who you’re working for. So, you do have to come to us about that. Just like we are not legally allowed to do trades. And so, you have to call them if you want to move your money around.
And so, there is a reason we’re sending you to another place, and it’s because they’re the ones who are going to be able to help you. So, I just want to, you know, leave on that note that we’re trying to get you to the right place, and you really do have to talk to both of us sometimes.
Seth
Come to somebody, we’ll get you to the right place. If you got to the wrong place initially, and that’s no fault of your own. Some of this stuff is just a little bit confusing, and that’s okay.
Malia
Exactly right. We try to make clear out there, our website has a lot of great how you log in to them, how you kind of get the information from them, and we’ll get you where you need to go.
Seth
All right. Thanks, Malia.
Malia
Awesome. Thank you.
[music outro]
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