In my opinion the best plan will offer less choices and have more of a pension fund like feel. Plan participants are confused by all the choices most plans provide. Many plan sponsors believe because theeir broker tells them so that more fund choices will reduce their fiduciary risks. This is not true. Given the increasing regulatory changes taking place now and in the future plan sponsors would be wise to hire an ERISA 3(38) investment manager to manage the investments in their plan. This transfer the

fiduciary risk to the professional investment manager.

The Reality

The Board of Directors or the owners of company are busy trying to make their companies successful. Spending time understanding and properly supervising the 401(k) is often way down their list of things to do. This “bottom of the list attitude”, towards the 401(k) is often demonstrated by the staff administrating the plan as well.

The common result is no one is properly supervising the 401(k). The people “up the chain” think that the people “down the chain” are “taking care of it”.  The people “down the chain” do not have the training or experience to really “take care of it” and they do not want to disappoint those “up the chain”. They often overly rely on their financial services providers (Merrill Lynch, John Hancock, ING, Fidelity, Wells Fargo etc.) who look at the 401(k) as a “cash cow”. The result is that the plan participants are often harmed.

The mandate for better supervision of 401(k) plans needs to start at the top with the company owner or in the boardroom. The reason is for the betterment of the plan participants and for the company owner or Board of Directors avoid looking foolish in a deposition.

This is additional proof that plan sponsors do not provide the necessary time and resources to managing their 401(k) plan. The regulations require that if the plan sponsor lacks the expertise or resources they are required to seek outside professionals to assist.

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