Over the past decade workers have used litigation to challenge 401(k) fees, but the frequency of these lawsuits has picked up drastically since 2015. The cases usually focus on excessive fees, poor plan designs, and alleged conflicts of interest. Plans of all sizes have come under fire recently, even plans with less than 100 participants, which was traditionally unheard of. In response, the 401(k) fee frenzy began. Many headlines would lead you to believe that plan costs are the highest ranked concern, however, according to research from Voya, plan sponsors place more importance on fulfilling fiduciary duty and retirement readiness.
Cheaper ≠ Better
It’s important to note, despite the headlines, cheaper does not mean better. ERISA guidelines specify that fees must be known and reasonable, not cheap. Regular benchmarking can shine light on plan costs and help you to compare your fees with other in your peer group.
Clearing the Air
Your employees expect a lot from you; as a plan sponsor, the decisions you make can help or hinder their ability to retire. This is where partnering with a professional retirement plan advisor could possibly reduce stress and increase retirement readiness. In this article, we’ll discuss tips, tools and ideas that focus on major plan sponsor concerns, mainly: fiduciary duty and retirement readiness.
The F word: Fiduciary
In a recent study, fiduciary responsibility – for the first time ever – entered the top ranks of plan sponsor concern; nearly 4 out of 10 say they have concerns about their fiduciary duties. If this rings true with you, consider this 4 step cycle may help manage your fiduciary commitment: document, assemble, monitor, implement, repeat.
Document: This may be the glue that holds everything together. In the 401(k) world, the process that got you to your decision might be more important than the decision itself. One of the best ways to approach your fiduciary responsibilities is to document everything, this includes: committee meeting discussions, service provider selections and the rationale, investment policies (Investment Policy Statement), and plan communications with employees. Ask your advisor about securely storing these items in a fiduciary vault.
Assemble: You are only as strong as your team. Your retirement committee might consist of internal and external members: including a third party administrator (TPA), an independent advisor, an actuary, and an ERISA attorney. It’s important that each member is aware of their role and that the committee:
• Adopts a charter
• Adopts an Investment Policy Statement (IPS)
• Meets quarterly and records meeting minutes
Monitor: During regular committee meetings, you should be monitoring and discussing the process around all plan documents, investments, service providers, and fees. Benchmarking your plan against others in you peer group is a great opportunity to evaluate participation rates, auto-features, deferrals and retirement readiness.
Implement: Based on the research and review of monitoring your plan set a path for implementation. Of instance, if your plan suffers from poor participation, consider auto enrollment for new participants or scoop up existing employees with a backsweeping campaign.
Repeat: Remember, fiduciary duty is an on-going process, so lather, rinse, repeat.
I think we can all agree that retirement readiness is purpose of offering a plan in the first place. If your focus is placed mainly on fees, funds, and fiduciary then you may be overlooking a major priority! To assess the health of your plan, a great question to ask is: Are my employees on track to retire on time?
During regular committee meetings, assess your participation and deferral rates, those may be indicators of how on track your employees are. Using that information, you can put in place auto features and advanced plan design options that aim to impact your employees saving accounts in a meaningful way.
To help you monitor and enhance your plan, Investment Solutions Group subscribes to a suite of advanced reporting tools that we analyze and boil down for you on a quarterly basis. These reports and our expertise allow us to help you regularly evaluate your plan and make meaningful adjustments that inspire action to help you and your employees work toward real retirement outcomes.
Jerome Pfeffer, CRC
INVESTMENT SOLUTIONS GROUP
6020 Academy NE, Suite 206
Albuquerque, NM 87109
(505) 888-4015 Direct
(505) 515-0036 Fax
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. This material was prepared for Jerome Pfeffer’s use.
Plan Sponsor Use Only – Not for Use with Participants or the General Public.
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 Groom Law Group. “Excessive Fee Litigation.” October 2016. http://www.groom.com/resources-1086.html
 VOYA Investments. “Sponsor Perceptions of Retirement Plan Services.” January 2017 https://retirementu.voya.com/landing-page/2017/01/03/sponsor-perceptions-retirement-plan-services
 Plan Sponsor: Managing Investment Fees Among Plan Sponsors’ Top Concerns http://www.plansponsor.com/Managing-Investment-Fees-Among-Plan-Sponsors-Top-Concerns/
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 Forbes: Sneaky 401(k) Fees You didn’t know you were paying https://www.forbes.com/sites/brianmenickella/2016/07/20/sneaky-401k-fees-you-didnt-know-you-were-paying/#30ec4eb33318
 Wall Street Journal: Why you should check your 401k plan’s fees?https://www.wsj.com/articles/why-you-should-check-your-401-k-plans-fees-1447038127
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