401(k)s: Watch Out For Speed Bumps

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Your 401(k) plan is far too important to ignore it’s administration. With the proper supervision your plan can become a valuable employee benefit. Your fiduciary responsibilities can be outsourced to professionals, relieving you of much of the risk.

Fast-growing companies are particularly prone to having their 401(k) plans get off track in one way or another, say experts. The combination of fluctuating asset levels, executive overload, and Internal Revenue Service rules that are structured in a way to¬†almost ensure closely held companies will violate them means that CFOs at those companies need to keep an especially close watch on them, at least at a high level. “You’d think I’d be most focused on the finance aspect [of the 401(k) plan], but that’s secondary,” says Gene Lynes, CFOof energy-management consultancy Ecova, which has rapidly grown its plan assets in the past few years to close to $15 million. “Being a good employer, we’re trying to protect people for the future and create high morale”: no easy task these days.The move toward fewer 401(k) options is one that has gained a lot of fans from companies both small and large in recent years. J.P. Morgan, for one, recently proposed a winnowing down, or at least an aggregation, of investment options to make things easier for participants. And such screening is a hallmark of plans that are targeted at smaller businesses. At Sharebuilder 401(k) (a division of ING Direct), for example, “our investment committee manages the fund lineup, and takes on the fiduciary responsibility,” giving everyone a fairly slim menu of 16 ETFs or one of five model portfolios, says Stuart Robertson, head of the division, which is aimed at plans with 250 employees or less. While there is still some choice and education involved, “we try to make it hard for participants to get off on the wrong foot,” he says.

That philosophy is extending to other parts of the plans, as well. Vanguard recently announced a new offering aimed at plans with under $20 million in assets, with standardized record-keeping and administration to help keep fees and hassle low. For example, there’s a prototype plan document that plan sponsors are asked to adopt that “has less flexibility than the standard one, but still has everything you need to operate the plan,” says Kathy Fuertes, who leads Vanguard’s new effort.

Most small companies would benefit from outsourcing the investment management fiduciary responsibilities. Be certain the professional agrees to act as the ERISA 3(38) Investment Manager in writing.

Please comment or call to discuss how this affects you and your company.

  • Your employer’s stock: How much is too much? (401kplanadvisors.com)
  • Six steps to the perfect 401(k) (401kplanadvisors.com)
  • On 401(k) plans, the less choice the better (401kplanadvisors.com)
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