Archives for December 2011

Key Questions for Your Retirement Plan Provider, Including the F-Word

Retirement plan providers all talk a good game. Plan sponsors need to ask smart questions to identify the best candidates. To help you, Smart Investor will present a series of posts listing key questions for your potential providers. Today’s post focuses on questions about services such as investment advice, education, participant communications, recordkeeping, and custody.

To fulfill your responsibilities under ERISA, the Employee Retirement Income Security Act governing retirement plans, you must understand in detail the specific services your vendors offer. So, ask the candidates, “What specific services do you provide and who will provide them?”

Walk away if your potential provider won’t answer your questions in detail. The Department of Labor requires them to provide this information in writing before you engage them.

Use the F-Word for the Best Retirement Plan

The following question is critical: “Are you a fiduciary and do you accept fiduciary responsibility in writing?” A fiduciary advisor upholds the highest standards, acting in the best interests of plan participants and beneficiaries.

Not every provider is a fiduciary. Many are not as we discussed in “The Secret Your 401(k) Vendors Don’t Want You to Learn: ‘Co-Fiduciary’ Doesn’t Mean Much.”

Hiring a fiduciary, especially a registered investment advisor who acknowledges status as an investment manager under ERISA Section 3(38) is best. This lets you delegate your fiduciary responsibility and liability to the advisor. Delegation is becoming more important as lawsuits for breach of fiduciary duty become more common.

Get the details on investment providers, recordkeepers, custodians, TPAs

Most providers work as a team with others, such as recordkeepers, custodians, and third-party administrators. Don’t assume those others also act as fiduciaries. Ask for the names of the companies, the services they’ll provide, and whether they will act as fiduciaries.

The list of services should also address whether the companies offer the following:

  1. Personalized one-on-one enrollment and fiduciary investment advice services for each of your participants
  2. Model investment portfolios, including a summary of their fund allocations, investment performance, expected rate of return and risk level
  3. On-line and 24/7 voice response system that allows participants to view and make changes to their accounts
  4. Participant communications and advice to help employees get the most out of the retirement plan
  5. Agendas and meeting minutes for your plan sponsor/trustee meetings with documentation demonstrating that you, the plan sponsor, is meeting your plan responsibilities

In future blog posts, Smart Investor will cover more important questions that plan sponsors must ask.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

After Occupy Wall Street, Occupy 401(k)?

Retirement plan sponsors, beware! The anger that fueled Occupy Wall Street and, closer to home, Occupy Sacramento and Occupy Stockton, could spread to the 401(k) world.

You may think Smart Investor is kidding. But we’re not.

Consider this statement by respected financial columnist Ron Lieber: “…people who are lucky enough to be employed and have a retirement plan ought to be staging a sit-in in the office of the person who runs that 401(k) plan. He made this comment in “5 Ways to Think About Nuisance Fees” in The New York Times (Nov. 18).

401(k) Plan Fees Worse than Bank of America Debit Card Fees

Lieber was comparing the impact of excessive 401(k) fees with the impact of Bank of America’s unpopular monthly fee for debit card users, which was ultimately cancelled in response to protests. From Lieber’s perspective, “However symbolically irritating Bank of America’s move was, we focus on smaller fees at our peril. The biggest potential hit on the fee front probably comes from your investments, where mutual fund fees can quietly rob you of enormous piles of money over time.”

We don’t believe Lieber is fomenting a new Occupy movement. But he makes a good point. Most consumers and retirement plan participants aren’t aware of the high mutual fund fees that sap their investment returns. Once they learn, they may get riled up.

Retirement Plan Expenses to Be Revealed in 2012

Right now it’s hard to cut through the verbiage obscuring the fees that plan participants pay for their 401(k)s. But that will change in 2012 when plan sponsors will be required to share expense information with employees in an easy-to-understand format.

Employees are likely to be upset when they learn they’re paying high fees and earning subpar returns. This is a good time for employers to clean up their 401(k) plans, so they get ahead of employee outrage.

Sacramento-Stockton-Roseville 401(k) plan sponsors, Smart Investor would like to help you boost your employees satisfaction with your companys 401(k) plan. Contact us at 916-435-2100.