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401k Plan Sponsor and Fiduciary Top 10 All-Time Most Popular “Must-Read” Articles

401k Plan Sponsor and Fiduciary Top 10 All-Time Most Popular “Must-Read” Articles
December 28
00:03 2016

Over the years, certain questions and concerns continually rise up in the minds of 401k plan sponsors and fiduciaries. One way to look at this is as though it were a “Fiduciary Fundamentals” checklist. We see evidence of the importance of these concepts in the repeated viewing of the same articles over and over again. Since its founding in 2009, has published nearly 800 articles for retirement plan fiduciaries. Within this list of hundreds of thought-provoking pieces, ten stand out. Here they are:

#10:3 Ways 401k Plan Sponsors Can Reduce Fiduciary Liability” – Corporate executives designated as a named fiduciary for their company’s 401k have many duties. Unfortunately, running a profitable business usually has a higher priority than the ongoing maintenance of the firm’s retirement plan. That’s too bad, for the executive’s fiduciary liability does not diminish in line with the lessened primacy in the executive’s duties. Fortuitously, ERISA provides the plan sponsor with several opportunities to reduce that fiduciary liability (though, importantly, these choices do not eliminate that same fiduciary liability). Service providers have recognized the value taking on this fiduciary liability has to 401k plan sponsors. Section 3(16) of ERISA allows plan sponsors to hire what is called an “Administrator.” In general, ERISA states the plan sponsor takes on the role of Administrator unless there is a third party provider “specifically so designated by the terms of the instrument under which the plan is operated.” This service is usually provided by recordkeepers and TPAs who then handle various reporting and disclosure requirements, including, but not limited to providing summary plan descriptions, 404(a)5 participant disclosures and the annual Form 5500 filing. To the extent the plan sponsor wants to transfer the fiduciary liability to a 3(16) Fiduciary for certain functions, those functions must be specifically delineated in the plan document.…

#9:Is the Fiduciary Liability of Self-Directed Brokerage Options Too Great for 401k Plan Sponsors?” – Holmes Osborne, principal of Osborne Global Investors, Inc. in Santa Monica, California, is about to meet with a heavy equipment company that wants a self-directed plan. As he typically finds, the desire for a self-directed plan stems from one of the executives wanting to buy individual stocks. “I’m completely for self-directed plans,” says Osborne, who plans to recommend a self-directed platform from a major mutual fund company that features low-fee funds. He adds, “When you take all fees, including my 25 basis points, some participants will be in at under 40 basis points. This is pretty reasonable.” Osborne feels comfortable with his recommendation. “As for self-directed,” he says, “I don’t see that being a liability for plan sponsor. There are trillions of dollars in online trading accounts. This is the same thing.” Or is it? …

#8:Ex-Employees Who Don’t Rollover – Will 401k Fees Increase Plan Sponsor Liability?” – There’s often a debate as to what’s in the best interest of ex-employees: to keep their retirement assets in their former company’s 401k or to roll those assets over into an IRA? What’s often overlooked in this calculation is whether this individual decision can inadvertently increase the fiduciary liability of the 401k plan sponsor at the former firm. To determine the extent of their potential added fiduciary liability, 401k plan sponsors must first discover what makes it so convincing for ex-employees to rollover their 401k into a personal IRA – and perhaps learn why this advice is considered controversial. Whether employees take their money comes down to two compelling themes…

#7:The Best Way 401k Plan Sponsors Can Benchmark Their Plans” – It’s evident all 401k plan sponsors ought to periodically benchmark their plans. Benchmarking provides a clear vista from which to survey the 401k plan. This helps identify weaknesses that can be corrected and addresses important fiduciary liability issues. We’ve established the concept of creating a Fiduciary Report Card to facilitate this process. Now comes the question of exactly what kinds of structures and procedures should a 401k plan sponsor invoke to benchmark their plans…..

#6:12b-1 Fees/Revenue Sharing Add to 401k Plan Sponsor Fiduciary Liability Woes” – The SEC is going after 12b-1 fees. The DOL is questioning revenue sharing. Jerry Schlichter and other class action attorneys are winning cases against plan sponsors exposed to these “backdoor payments” as the White House has called them. Could it be, after years of warnings, we are finally about to witness the fall of the house of 12b-1? Will revenue sharing go the way of the dinosaur? More importantly, will the fossils they leave behind be fraught with fiduciary liability that 401k plan sponsors will continue to pay for years from now? To begin to piece together answers to these intriguing questions, polled financial professionals from across the country for their thoughts, ideas, and speculations. …

#5:What is a ‘Collective Investment Trust’ and Does It Make Sense for a 401k Fiduciary to Use One?” – We’ve written about these ancient investment pools before (see “CITs in 401ks: The Good, the Bad and the Ugly,”, March 22, 2010) and, quite frankly, they remain pretty much the same old same old today. Still, with new people coming into the 401k fiduciary world, a quick refresher course is generally never a bad idea. In fact, according to the Coalition of Collective Investment Trusts (CCIT), “In 2014 a Callan Trends Report of larger 401(k) plans noted 60% of defined contribution retirement plans offered CITs in their fund lineup, up from 52% in 2013.” As to the reason for this, Kevin Lyman, General Counsel of Invesco Trust Company and current Chairman of the CCIT, says, “CITs have become an increasingly attractive option for retirement plan sponsors, who are more focused than ever on controlling plan fees and costs…

#4:Fact or Fiction? Slaying the Myth of the 401k Tax Advantage Myth” – Everyone knows the reason why we save for retirement: We reap the immediate benefit of deferring taxes today in exchange for paying lesser taxes tomorrow. The mantra has been repeated so often it’s almost considered heresy to challenge it. The assumption, however, that tax rates will always remain lower in the future has suffered serious damage in recent years. Indeed, Washington has recently increased the intensity of its anti-401k rhetoric, claiming the retirement plan at once both has been a failure for too many and worked too well for too few, further widening the disparity between high income and low income workers. These antagonists also allege retirement plans take away badly needed government revenues. An easy-to-understand analysis proves both of these contentions are false. Not only do the benefits accrue more favorably to lower income workers, but, when it’s all said and done, the government earns greater revenues as a result of these tax deferred vehicles. While the partisan wordplay is generally ignored by financial professionals, it might surprise you to discover there’s no universal agreement on the tax advantages of 401k plans…

#3:What is the 401k Average Deferral Rate?” – When it comes to deferral percentages, the most asked question is: “What does everyone else do?” It shouldn’t surprise you to find out the answer ranges all across the board. In their “Annual 401(k) Benchmarking Survey (2012 Edition),” Deloitte found “the most common default deferral percentage remained consistent from 2011 to 2012 at 3%. While a 3% deferral rate will get participants into the plan, unless it is coupled with step-up contributions and an active education campaign, 3% is not likely to support a comfortable retirement.” On the other hand, Russell Investments (“A Defined Contribution Retirement Handbook – 2014/2015”), citing Plan Sponsor Council of America’s “55th Annual Survey of Profit Sharing and 401k Plans, 2012,” reports an average contribution rate of 6-7%. Academic studies (see “7 Low or No-Cost Ways to Increase 401k Participation,”, July 17, 2012) have long suggested why participants aggregate deferral rates around certain percentages and real-world practitioners can confirm their findings…

#2:What’s a Fair Fee to Pay a Fiduciary” – In the world of fiduciaries, there will always remain one enduring conflict of interest. No one can remove this conflict of interest. It represents the ultimate in the tug-of-war between always putting the interests of the beneficiary ahead of the fiduciary and placing the fiduciary’s desires above those of the beneficiary. It comes down to one word: Fees. Think about it. It’s impossible to eradicate this conflict of interest. Imagine what would happen if you did. You’d have the fiduciary answering every beck and call of the beneficiary – or client – and receiving no compensation for the provision of those services. We have a word for that, too. It’s called “slavery.” Most folks nowadays pretty much agree slavery is a bad thing that we shouldn’t encourage. That leaves the question, “how do we reconcile our need to always act in the best interests of the client with the need to avoid resorting to slavery?” This question has two answers….

#1:What is an Appropriate Fee that a 401k Plan Should Pay?” – Every 401k plan sponsor wants to know the answer to this question. Every plan participant would benefit if their plan sponsor would know the answer to this question. Every industry reporter, analyst, and pundit think they know the answer to this question. Every regulator knows there’s no right answer to this question. Or is there? With the advent of 408(b)(2) (the DOL’s 401k Fee Disclosure Rule), the discussion of fees – and their appropriateness – has never been higher. Just recently, a letter from two university researchers purporting to threaten to disclose the names of those plans paying “high” fees. Well-known ERISA attorney Fred Reish and others have since rebuked the research methodology that formed the basis in this letter. Still, plan sponsors (and their service providers) are particularly vulnerable – whether true or not – to the charge of “high” fees…

How do these articles represent the leading worries of 401k plan sponsors and fiduciaries? Do they reflect your angsts? Or are you confident you know all the answers?

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on Twitter, Facebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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