Time to Make Time to Review Your 401(k) By: David BardCRPS® AIF®

We’ve all seen the 1980’s Dunkin’ Donuts commercial from the 1980’s where Fred the donut worker gets up early in the morning and says over and over: “Time to make the Donuts”.   Fast forward and substitute Fred the baker for today’s harried retirement plan fiduciary and the new mantra is, “Time to Review Your 401(k)”.   The world of 401(k) plans is complex and regulations have changed while the DOL has demanded even more from plan fiduciaries.   Do you know what has changed?  Do you know what is changing, what regulations have been proposed, and what you are responsible for?  When was the last time you completed a thorough review of your retirement plan using an outside, independent expert?

Plan fiduciaries often wear more than just one “hat” for their employer.  They have various responsibilities and are often saddled with a myriad of roles besides being a “plan fiduciary.”  They are usually also the CFO, HR execs, or VP’s of Finance and accounting, who often have the added pressure to increase sales, cut costs and improve profitability.  In addition to their daily day-to-day roles and responsibilities, a plan fiduciary has decision making authority over the retirement plan(s) and is duty-bound to take non-conflicted, affirmative action(s) for the sole benefit of plan participants and their beneficiaries.  

You may not have any worries.  You may not even be thinking about your retirement plan. Your firm’s current retirement plan may actually seem to be going well.  Your employees might be participating in pretty good numbers. Everyone may seem happy. You haven’t heard of many complaints and you have a few meetings a year where you—and your committee—listen to service provider updates and investment data and your returns seem within appropriate ranges.  All seems great, right?  Not necessarily. Those donuts aren’t ‘fresh’!  There is a lot more  you need to be aware of and to be proactively doing to ensure  you meet the standards of fiduciary responsibility. If you fail to act in the best interests of your plan participants, and fail to document that, you may be liable.  It’s time to make the time to review your plan.   

As of the summer of 2012, the US DOL has required that service providers (recordkeepers, administrators, investment advisors, and others) to retirement plans disclose compensation and fee information to plan fiduciaries in writing.  Then, in order to avoid penalties and possible civil actions under ERISA, the plan fiduciary has a legal responsibility to:
1. Identify all covered service providers.
2. Confirm receipt of all your services provider disclosures. 
3. Review content of disclosures to confirm completeness. 
4. Assess whether fees being charged to the plan are “reasonable”.

Now, “It’s time to make the Donuts!”  It’s time to engage with a firm that has the knowledge, experience, and skill to review your plan and assess the reasonableness of all fees being charged versus services provided.  401k fees are often hidden, difficult to identify, and often unknown and/or buried into fund expenses.  And you, as a named, plan fiduciary are responsible for what you should know, rather than what you actually know.  As a retirement plan fiduciary, do you really know what services you are receiving?  Do you know what services may be available on your current platform or available on another platform?  Do you know how much you are currently paying for the services you are receiving?  Do you know your recordkeeping costs broken out from your investment expenses and advisor cost?

The lack of transparency from service providers, the lack of clarity from investment managers,   and the obfuscation by investment advisors combined with the lack of time, knowledge, and expertise necessary to perform the analysis are all contributing factors that make review by the overwhelmed plan fiduciary very difficult if not impossible.  We are empathetic to these factors which encumber a plan fiduciary from fulfilling their role.  We understand  a fiduciary isn’t always equipped to perform the analysis demanded by law and the DOL, given their time constraints and unfamiliarity with the nuances and language of retirement plans.    

In our experience, once the fiduciary makes the time to engage a specialized firm for assistance, best-practices dictate that they solicit vendors with an RFI asking for competitive bids for services.  You have a fiduciary responsibility to evaluate the plan’s needs and search for the most suitable service providers with the most reasonable cost.  This RFI is a ‘live’, ‘go-to-market’ exercise designed to provide a plan sponsor and fiduciary with the most current pricing data while outlining new and improved services and tools for plan participants  they may not be aware of.  Not only does this allow plan sponsors to provide participants with a better plan, but should the DOL’s law-enforcement arm—the Employee Benefits Securities Administration, or EBSA—come calling, the plan and plan fiduciary has proof they are fulfilling their fee disclosure duties and have demonstrated a fiduciary process and fiduciary prudence.  Just as importantly, the plan sponsor can use this process to negotiate with providers for better pricing.   

Fee disclosure is all well and good as long as plan fiduciaries take an active role and recognize the need for the extra step to actually examine and perform an analysis of the plan.  By taking the time to hire an outside expert, a plan fiduciary has proactively made a decision to protect themselves from liability and fulfill their moral duty to create better plan outcomes for their participants.  

Thus far, we have focused on plan fees and the liability associated with NOT actively assessing them; just as importantly, a plan’s fiduciary governance structure and procedures should be reviewed and monitored as well.  There must be time made for Fiduciary committees to enforce good and sound fiduciary processes.  Plan fiduciaries and their committees are strongly recommended to hold regular meetings and keep accurate records of all matters discussed. When significant decisions are made, those decisions should be documented, and any alternatives considered should be described. Finally, all appointing fiduciaries should be reviewed as well. 

So while plan fiduciaries often get distracted, side tracked, and overwhelmed by the stacks of papers on their desks; while their inbox grows, time must be made to assure the plan's needs are being met in a competent, efficient, and price conscious manner.  The solution is to engage in outside, independent experts, who can assist and partner with a plan’s fiduciary to make the best, freshest, and most delicious “donuts”.  


David S. Bard

David is the Senior Consultant of Westminster Consulting where he provides comprehensive retirement advisory services to the fiduciaries and plan committees of corporate retirement plans.

Prior to joining Westminster Consulting, David was a corporate retirement plan advisor with Courier Capital Corporation....

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