5 steps to accommodate major 401(k) compliance deadline looming August 30

New regulations are becoming effective soon and there will be more coming. Please take the time to review your 401(k) plan periodically to protect yourself and your employees.

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English: Logo of the German Internet Service Provider 1&1, subcontrator of United Internet Deutsch: Logo des Internet Servie Providers 1&1, Unternehmen in der United-Internet-Gruppe (Photo credit: Wikipedia)

To deal with these challenges: 1. If you haven’t done so already, get to work pronto on the fee disclosures due August 30. The first step is to determine whether your service providers have fulfilled their regulatory obligations by supplying the fee information – including the specific services being provided for each amount – to your company.

2. If you’ve received this information, set to work interpreting these documents. This can be a lot tougher than it sounds, as some plan providers are burying pertinent information in lengthy documents. If, at the outset, this task seems too difficult or time-consuming, consider hiring an independent fiduciary advisor to assist you with this, as well as with benchmarking your fees against the market. Using a fiduciary can significantly reduce your company’s liability.

3. If service providers have failed to supply the required fee information, document this by writing to them and requesting speedy submission. This can insulate you from liability for not disclosing the information to employees on time. If these providers don’t respond immediately (after all, the deadline is fast approaching), protect your company by blowing the whistle on them with the DOL.

4. Prior to making the fee disclosures this month to employees, notify them in meetings and/or in emails of what is coming their way. Tell them this is the first step in a process to review – and, possibly, to lower – fees and to improve service, including the provision of better plan education. Again, an independent advisor can help with this.

5. Throughout this notification/disclosure process, document all questions that employees ask and the answers they receive. This helps manage your legal and regulatory liability, and it helps you develop the best answers to give when the same questions come up again.

Your service provider may have buried the necessary information in mounds of paper work. If this is the case, please seek the assistance of an independent fiduciary. These regulations may seem daunting and very confusing, but with the proper help easily accomplished.

Please comment or call to discuss.

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Investors to face challenge of figuring out new 401(k) fee disclosures

The Wall Street bullies will not give up without a fight. I have read fee disclosure documents that were 42 pages long. Plan sponsors need to study these documents or hire someone to do it for them. Only then will we know what the actual costs of the plan are. The banks and the other Wall Street bullies have used the 401(k) plan as a cash cow. We now have the tools to stop them.

English: Wall Street sign on Wall Street
English: Wall Street sign on Wall Street (Photo credit: Wikipedia)

“The best part of this rule is that the company executives or those responsible for managing 401(k) plan benefits must take the time to understand the flow of money or the economicsof the 401(k) plan,” said Jason Chepenik, managing partner of Orlando-based Chepenik Financial, a planning company that manages 401(k) plans.”It is their fiduciary responsibility to benchmark their plan across other plans of similar size,” he said. “They can no longer get away with the explanation that the owner’s ‘brother-in-law,’ or perhaps their bank, provides the plan. The key is this: It’s not the owners’ money; they have only one responsibility, [and] that is to do what is best for the participants at all times.”

Plan sponsors can no longer rely on their bank or ‘relative’ to take care of their company retirement plan. The DOL is watching.

Please comment or call to discuss how this affects you and your company 401(k) plan.

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5 Ways to Boost Your Company’s ROI on 401(k)s

With the new fee disclosure rules requiring notifying employees of all fees in their plan by the end of August, 2012 plan sponsors need to take a proactive role. Remember 401(k) plan has become the sole source of retirement for most Americans. It requires and deserves your full due diligence. Plan sponsors must be certain that their plan is for the sole benefit of the plan participants and their beneficiaries.

Mutual Funds for Dummies ...U.S. Funds at War ...
Mutual Funds for Dummies ...U.S. Funds at War -- Too simple? (Monday, June 4, 2012) ... (Photo credit: marsmet545)

In addition to exposing the new fee data, the new 401(k) disclosures present an equally important opportunity for CEOs to understand if their plan truly makes sense–for their company and their people. Here’s what to look for:1. Determine your “all-in” cost.

There are two broad sets of ongoing fees that come with your 401(k). The biggest chunk is a fee that goes to the investment company managing the underlying portfolios–which is bundled up into what’s known as an expense ratio. The sneaky thing about annual expense ratios is that they never show up in a statement; they’re deducted from a fund’s gross assets. Investors see only their performance net of fees. Good news, though: Expense ratios are included in the new data disclosures, expressed as a percentage of assets. If your plan uses retail mutual funds, you can also find this data online for free at sites like Morningstar.

The second set of fees covers recordkeeping and other administrative costs. Combine the two, and you have what is known as the all-in cost.
 How does your “all in” stack up? A study last year conducted by Deloitte Consulting for the Investment Company Institute broke down median all-in fees by plan size. Though the overall median was 0.78%, the typical charge for plans with less than $1 million in assets was 1.41%. For plans that size, the lowest fees (at the 10th percentile) were 0.99%, and the higher end (90th percentile) was 1.83%. For plans with $1 million to $10 million, the median all in was 1.14%. At the 10th and 90th percentile, the medians were 0.80% and 1.60%, respectively. If your plan’s all in is at the higher end, time to start asking some questions.

2. Confirm you have low-cost index fund options.

There are two broad approaches to investing: Park your money in a mutual fund that’s built to track an established benchmark, such as the S&P 500 index for U.S. stocks or the Barclays Aggregate for U.S. bonds. The other approach is active investing, where there’s a manager or an investment team in charge of making all investing decisions–what to own, when to buy, sell, etc. 
I realize active sure sounds more compelling; hire some smart guy, and you will whip the index. If only. I’ll spare you the deep data dive and cut to the chase: The vast majority of actively managed funds underperforms index funds. Pick any time frame and any type of fund (stock or bond, domestic or foreign, etc.), and index funds do better.

My definition of a good 401(k) is one that includes index fund options. Moreover, they should be cheap index funds, ideally with an expense ratio of no more than 0.50%, and preferably lower. If you have index funds that charge 1% or more, that’s just too expensive for a passive investment strategy. I’d be asking some seriously sharp questions at that point.

3. Take inventory of your fund options.

More is not necessarily better in terms of the number of investment options your plan offers. Studies have shown that when there are too many choices, participants get confused or frustrated or just decide not to participate. If you really want to keep it simple–and simple, here, is incredibly smart and effective–I would make sure you have one broad U.S. stock index fund, one broad U.S. index fund, and a diversified international stock fund, preferably an index fund. That’s going to give your plan plenty of bang for the buck. If you also want to offer more specific funds, such as portfolios of small-cap stocks, emerging market portfolios, perhaps a TIPs fund, etc., that’s your call. But don’t go overboard with the number of options.

Plan sponsors should take a more proactive role in the management of the company sponsored retirement plan or seek professional fiduciary help. Many of the fiduciary functions can be outsourced, freeing up staff time and reducing liability.

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

Posted via email from Curated 401k Plan Content

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New 401(k) Fee-Transparency Rules Demand Attention

Plan sponsors should, by now, understand all the fees within their plan, they should also understand who acts as a fiduciary to the plan and what their roles are. Are the fees reasonable? Are the entities being paid adding value to the plan? The next deadline is September 1, 2012, plan sponsors must inform the plan participants of this information. Are you ready for the questions?

BEVERLY HILLS, CA - FEBRUARY 07: (L-R) AARP The Magazine Publisher Catherine Ventura-Merkel, singer Tony Bennett and AARP The Magazine Entertainment Editor Bill Newcott pose at AARP Magazine's '10th Annual Movies For Grownups' Awards Gala at the Beverly Wilshire Hotel on February 7, 2011 in Beverly Hills, California. (Image credit: Getty Images via @daylife)

July was the deadline for providers to disclose clearer and more detailed fee information to plan sponsors. Another, more challenging deadline — from an HR perspective — is approaching on August 30, 2012.This time, it will be up to plan officials — the very same committee members or individuals who typically sign off on 5500 forms — to supply more detailed and specific information to plan participants regarding the fees they’re paying for their 401(k) plan management and administration.

It’s no secret that plan participants are often in the dark when it comes to the plan fees they often pay out of their plan assets — with many, if not most, participants believing they pay no fees at all.

The AARP reported last year on a survey of more than 800 plan participants at the end of 2010. Seventy-one percent of those polled believed that they did not pay fees on their 401(k)s.

Plan sponsors should have the information to comply with the new fee disclosure regulations effective July 1, 2012. The next challenge is to supply this information to plan participants by September 1, 2012.

Please comment or call to discuss how this will affect you and your company sponsored retirement plan.

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Participant Fee Disclosures and The Duty to Inform When Participants Ask Questions.

Many plan sponsors consider the 401(k) plan as a necessary evil. They pay little attention to the plan and rely on sales people to manage their plan . Many do not realize the risks and reponsibilities they incur when they establish such as plan. The business community needs to focus on improving the 401(k) plan for the sake of their employees. Or the federal government will be forced to address this important issue. There is a retirement crisis that must be addressed.

Question Mark
Question Mark (Photo credit: auntiepauline)

How does this duty apply with regard to participant fee disclosures?If a participant has a  question about the new fee disclosures, the fiduciaries have a duty to make certain the question is fully and accurately answered.  Many companies do not have a process in place to be certain that a knowledgeable plan representative is the person answering the questions.  And many do not have a process for getting the right answer to the participant who is asking the question.  Many companies have no process in place to confirm that a question was answered and was answered correctly.

If a participant, now seeing the fees she is paying in the new disclosure format, inquires about those fees and whether or not there are less expensive alternatives to direct her investments, it is going to be incumbent on the plan fiduciaries (unless the questioner is actually seeking investment advice) to give accurate and complete information.  The failure to do so could lead to a claim down the road.  There may be many other types of inquiries that could result from the new disclosures as well.  Plan fiduciaries should be prepared with a sound process to make certain that the duty to inform is not breached.

The questions will come are you ready?

Please comment or call to discuss how this might affect you and your business.

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See How Your Company’s 401(k) Plan Stacks Up in Three Simple Steps

When your employees open their 401(k) plan statement later this year and learn what they are really paying in fees they will have questions. Are you ready to answer these questions? A proactive approach may be the most prudent choice.

English: GAO report image explaining interchan...
English: GAO report image explaining interchange fees. (Photo credit: Wikipedia)

Calculate Your Employee ExpensesUsing the new fee disclosure document that was sent to you by your provider, take the total amount of investment fees paid (total of fund expenses and all other investment fees) and divide that number by your plan’s assets.  Ideally, use the average balance of your plan over the last year or your calculation will likely understate your fees.

2. Compare Costs of Plans Offered by Other 401(k) Providers

Now that you’ve calculated your employee fees, if that rate is greater than one percent, you know you’re in a higher priced plan – and that can cost your employees a very material and sizeable chunk of their retirement over a career.  You’ll likely want to do some shopping around for a better deal.   Some providers will create a custom cost comparison at no charge or obligation to help you see how different plans stack up.

3. Make the Switch if You’re Paying Too Much

Plan sponsors need to proactively determine if their company sponsored retirement plan is efficient enough for their employees to successfully retire. The service providers they contract with are under no obligation, legal or otherwise, to offer asn efficient plan. Their only objective is to make the sale and collect fees.

Please comment or call to discuss.

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401(k) Fees Exposed in New Rules

The new fee disclosure regulations are a great first step in improving the 401(k) plans in America. Although many firms will continue to hide fees by burying the disclosures in mountains of paper. I have heard that an insurance company fee disclosure document is 42 pages (in fine print). The next step is to automatically enroll participants in a age approporaiate portfolio and then allowing the participant to opt out.

The protest against the mark-up of insurance f...
The protest against the mark-up of insurance fees (2002.8.27, Taipei) (Photo credit: Wikipedia)

Fees charged by the financial institutions that administer these employee tax-deferred savings accounts are often a mystery. If you don’t believe this, go to the drawer where you keep your quarterly 401(k) statements and see if you can find the word “fee.”These statements give the dollar value of shares in different investments, such as mutual funds. Yet the performance of these investments is actually better because instead of stating fees, these statements give investment-return figures after fees have been taken out.

This omission is highly convenient for the large brokerages and insurance companies that provide 401(k) plans because it allows them to charge high fees, paid by investors who have no inkling of the hit their retirement accounts are taking. While these institutions must disclose all fees when asked, federal rules haven’t required them to voluntarily disclose these fees — until now.

Sweeping new rules from the U.S. Department of Labor are designed to shine a bright light on 401(k) fees. One of the requirements is a new format for quarterly statements that will show fees. The statement you receive in the fall will look nothing like the ones piled up in your drawer. It will include an eye-opening table showing fees and actual returns for each investment before fees are taken out.

Effective July 1, 2012 401(k) service providers must inform plan sponsors of all fees charged within their 401(k) plan. Effective September 1, 2012 plan sponsors must inform plan participants of these same fees. Many if not most plan sponsors have done nothing to prepare and may be deluged with questions about the fees in their plan from employees.

Please comment or call to discuss how this affects you and your company 401(k) plan.

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Your Broker (Not You) Will Retire on Your Retirement Plan

The new fee disclosure regulations are effective July 1, 2012 for plan sponsors and September 1, 2012 for plan participants. These regulation are a solid step forward in reining in the excessive fees charges by service providers over the las t two decades. However, plan sponsors should consider the excessive fees charged regardless of the new regulations. These fees have a negative effect on their employees and themselves ability to successfully retire.

The plan proposed the most complex highway interchange attempted in Ontario to that point. (Photo credit: Wikipedia)
  • The average American household will pay, on average, almost $155,000 over the course of their lifetime in total 401(k) fees. In this economy, that would buy a pretty nice home.
  • The fees paid by 401(k) participants are 46 percent higher than fees required to manage the typical traditional pension plan.
  • Merely requiring the disclosure of fees, which new Department of Labor regulations effective on July 1, 2012 will do, will only “marginally reduce” excessive fees.
  • Employees believe that higher fees guarantee higher returns when the opposite is true. Lower fee index funds often have higher net returns than higher fee actively managed funds.

Many plan participants believe that their 401(k) plan is free to them. This is wrong. When the new fee disclosure regulations become effective later this year (2012) Plan participants will learn the truth. That is if they bother to look.

Please comment or call to discuss and learn this will affect you and your company.

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Guess How Much Your 401(k) Plan Is Costing You in Hidden Fees

WASHINGTON, DC - JANUARY 26:  Internal Revenue...
WASHINGTON, DC - JANUARY 26: Internal Revenue Service Commissioner Douglas Shulman testifies before the Senate Homeland Security and Governmental Affairs Committee January 26, 2012 in Washington, DC. The committee heard testimony on the topic of 'Taxation of Mutual Fund Commodity Investments.' (Image credit: Getty Images via @daylife)

Most plan sponsors and participants believe their 401(k) plan has zero fees. On July 1 plan sponsors must know exactly what fees they paying and to whom. Plan sponsors must reveal these fees to plan participants by September 1, 2012. This will prove to be a real eye opener for all, particularly those with a high account balance. I believe this ‘cash cow’ for the brokerage firms, insurance companies and banks will disappear very soon.

In addition, the report notes that the average mutual fundmatches the average return of the overall stock market by earning a 7% return before fees are factored in. However, once those fees are subtracted, the report notes that these returns fall to 4.5% or about one-third less.Although paying no fees for 401(k) plans and their associated investment options is not realistic, this report does highlight the potential for fee disclosures to begin a serious discussion about what constitutes a reasonable level of fees for 401(k) plans. Once plan fees are out in the open, plan sponsors and plan participants can see what they are paying compared to what they are getting both in terms of investment returns and plan services. If a plan provider’s fees are higher than those of other providers, plan sponsors can shop the plan around more easily to get a better deal for participants. In fact, it may be the plan sponsor’s fiduciary responsibility to do so.

Investment fees for many actively managed mutual funds are unjustified based on their inability to beat the market.

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

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