August 8, 2016

Plan Sponsors: Is there an "oh?" in your 401(K)?

Companies shoulder an incredible responsibility when it comes to sponsoring a retirement plan for its employees. No one should know this better than the plan sponsor. There are a lot of moving pieces in a plan, and a plan sponsor can ill-afford to look the other way for a while, or assume the plan is rolling along just fine. Lurking underneath could be some causes for concern that may have plan sponsors scratching their heads asking, “Really?” or “Should I have known that?” …or simply, “Oh?”

So, what could be possibly be putting the “Oh?” in a 401k?

Well, here are some snippets of actual conversations we’ve had with plan sponsors who’ve come to us for assistance with their 401k plans over the last several months:

Us: “Hey,  Not sure if you realize this…but looking at this paperwork…the fund lineup in this plan is the exact same as it was when the plan started 20 years ago.”Plan Sponsor: “Oh?”Why is this a concern? Well, over time funds could lag behind the performance of their peer class. A fiduciary has an obligation to prudently select investment options for the plan. There’s also an obligation to periodically evaluate the performance of the funds to determine whether those funds should continue to be available options for the participants. By continuing to offer funds that aren’t keeping up with their peer-class, it could be determined that the plan sponsor isn’t acting in the best interest of the participants and beneficiaries.

Us: “Taking a look at this, looks like your plan fees are higher than other plans of similar size.”Plan Sponsor: “Oh?”Paying more in fees than what similar-sized plans are paying can be one of those slow-cooking problems. Think about this…even a small plan whose service provider charges just a half a percent more in fees than is “reasonable and appropriate” will, over the long haul, deprive employees of potentially thousands and thousands of dollars that would have otherwise gone into in their retirement accounts. Regular benchmarking, and sending out requests for proposals (RFPs) at certain time frames or asset-size marks will help to ensure the plan’s fees are competitive, reasonable and appropriate.

Us: “Are you holding your annual reviews, and regular plan meetings? It’s important, you know?”Plan Sponsor: “Oh?”Sure, to be successful in your business, you’ve got to be focused on it 100% every day. But, don’t blow off or skip meetings concerning your company retirement plan. At a recent workshop on 401k fiduciary responsibility, a former DOL investigator presented a list of what documents you would likely need to produce if your plan was audited by the DOL. Among the long list were Summary Annual Reports, and minutes of any meetings related to the Plan, including meetings by the Board of Trustees, Administrative Committee, Investment Committee, or other Plan Committee. In other words, they are looking for proof you are actively engaged in the plan and are addressing and issues that arise.

Us: “Hmmm. Looks like the fees to the advisor on your plan vary from fund to fund.”Plan Sponsor: “Oh?”We talked about fees being reasonable and appropriate, but what if the plan’s advisor is getting paid better for recommending one choice over the other? You’d be surprised. We came across a plan where the advisor had recommended all participants use a third-party manager, only to find out the advisor was getting paid extra to do so. Remember, the plan should serve the best interests of the participants and beneficiaries.

Us: ”When’s the last time you’ve seen you’re advisor? He should be coming around regularly and servicing the plan.”Plan Sponsor:  “Oh?”…or maybe it was “Uh-oh!”The Fly-By or MIA advisor. He or she sets up the plan, but doesn’t give it the attention it deserves. Remember, in most plans the advisor is being paid by fees from the participants’ funds. Surely, you want your employees to have access to the services and expertise they are paying for. A good advisor stays in touch with the plan sponsor, is available and attentive to the participants, and is present and proactive in the operation of the plan. If you haven’t seen or heard from your advisor in a while…or maybe can’t even remember his or her name, it might be time to make a change.

Of course, there are many other issues that could pop up and raise questions in your plan. If you have an “Oh?” that’s weighing on your mind, give us a call or drop us an email. We can perform one-time or periodic plan reviews on a consulting basis, or engage with you as your plan’s on-going advisor. We’d be glad to sit down and see if we can work with you to get rid of the “Ohs”, and bring value and peace of mind to your plan.