Why 401(k) Plans Are Doomed From The Start

WASHINGTON, DC - MARCH 24:   Representative Jo...
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To provide the retirement benefit you want for your employees requires close attention to detail and design. Plan participants have proven they lack both the skills and the desire to properly manage their retirement plan.

On the flip side, plan sponsors are also responsible for their share of detrimental mistakes. They’ve been discussed before in white papers and articles in journals and on industry websites such as 401khelpcenter.com. Here are a few:

  1. Not having the time or expertise to properly manage the plan.
  2. Relying on financial services salespeople for “advice” rather than true fiduciaries or ERISA attorneys.
  3. Believing that a financial services company or plan salesperson is acting in the best interest of the plan or its participants.
  4. Failing to understand the difference between suitability and fiduciary protections.
  5. Not understanding their ERISA responsibilities in running the plan.
  6. Failing to abide by ERISA rules.
  7. Failing to offer adequate diversification of investment options.
  8. Failing to understand all the costs in a 401(k).
  9. Failing to control plan costs.
  10. Not having an Investment Policy Statement for the plan.
  11. Failing to have a prudent methodology to select and monitor investment options.
  12. Failing to assess the plans compliance to ERISA and DOL rules and regulations.
  13. Thinking that the “education” provided by the financial services company associated with the plan is investment advice.
  14. Failing to know that the plan fiduciaries can held personally responsible for their ERISA mistakes.

The mistakes of plan participants and plan sponsors prevent most 401(k) plans from providing meaningful retirement income. The “401(k) industry” has made a killing off the current system, which has made the problem worse. The Department of Labor has provided written guidance as to what to do to address these issues, but too few plan sponsors are aware of this guidance or have embraced it.

The defined contribution (401k) plan can be saved however it requires plan sponsors hiring experts instead of salespeople.

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

  • 5 Characteristics of a Great 401(k) Plan (401kplanadvisors.com)
  • Stop Guessing – Start Planning > 4 Traits of the Best 401(k) Plans (401kplanadvisors.com)
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