401(k) Specialist Issue 1 - 2021 - 33

MARCH
BRENT SHEPPARD, Cadence Financial Management
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.
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. "
" Once they
[employees] were
taken through
a full education
program on
retirement savings,
coupled with
employer dollars
and direct financial
advisor support,
the changes
caught on. "
Brent Sheppard is a partner and
financial advisor with Marlton, New
Jersey-based Cadence Financial
Management.
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401(k) Specialist Issue 1 - 2021

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