Plan sponsors need to get a handle on this early. An independnent analysis will clarify what needs to be done, if anything. Indifference will result in increased fiduciary liability and many irate employees. Employers have the huge responsibility to help their employees successfully retire, whether they like it or not. The alternative would be to hand it over to the federal governement.
Here are some practical recommendations for fiduciaries seeking to change their investments and feesbefore the disclosures become mandatory:
- Know what your fund management fees are and make sure to investigate whether institutional class fund shares, which typically have lower fees, are available for your plan. David Hurley of Investment Consultants states in the article that investment management fees may represent as much as 90% of 401(k) costs.
- Provide an investment menu with a manageable array of funds. It is not advisable to simply make all of the funds in a mutual fund family available to participants. There will be a mix of high and low performing funds in the platform offered and these may have different fee levels. Plan sponsors report that many participants are likely to be overwhelmed by too much choice. In addition, fiduciaries will have difficulty demonstrating that they fulfilled their fiduciary responsibilities to select appropriate funds if they do not review and winnow down fund family offerings.
- Many fund families will let your plan use outside funds. Investigate their performance and fees.
- Offer low-fee index funds as an option.
- Consider whether your participants pay commissions, loads and other costs of investment. Transaction costs as well as your administrative and record-keeping costs may be negotiable. Fund sponsors often waive loads for 401(k) and pension accounts.
- Consider undertaking a request for proposal from new service providers, if your provider’s fees are high, particularly if you haven’t done an RFP recently.
- Consider hiring an outside adviser if your in-house expertise is limited.
However, it is also important to remember that fees are only one factor to consider in fulfilling fiduciary responsibilities. Performance and level of service should be weighed as well, and a fund with outstanding performance may be worth higher fees.
This is great advice for all fiduciaries. Plan sponsors, big and small, need to be diligent when offering a retirement plan to their employees. This benefit will allow your employees to successfully retire if given the right tools.
Please comment or call to discuss how this affects your company retirement plan.
- The Big Flaw in 401(k) Reform (401kplanadvisors.com)
- Ameriprise workers sue over company’s own 401(k) funds (401kplanadvisors.com)
- New 401(k) Revenue Sharing and Fee Disclosures Could Re-Shape DC Plans (401kplanadvisors.com)