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This is How 401k Plan Sponsors Get Education Answers to These Three F-Words

This is How 401k Plan Sponsors Get Education Answers to These Three F-Words
July 30
00:03 2019

Earlier we detailed “5 Top Education Topics 401k Plan Sponsors Need To Ask About But Don’t,” (, July 2, 2019). Those represented a handful of very specific areas that are too often ignored. There are areas, though, where 401k plan sponsors actively seek education assistance. These strategies can help them find answers for what their looking for, but may also reveal they questions they’re not asking but should.

Before we get too far into the weeds, we must recognize the challenge running a retirement plan presents to those corporate executives tasked with the job. “It’s fairly common for the plan sponsors to be wearing multiple hats at their company, so retirement plan education and/or fiduciary training is something that may be forgotten in their busy schedules,” says Brett Trusty, Manager of Retirement Plan Services for Unified Trust Company in Lexington, Kentucky. “Plan sponsors rely heavily on their advisors for education related to the plan and the retirement plan industry. Since they are not proactively looking for education/training, it’s important to incorporate education/training in as many meetings with plan sponsors as possible.”

Part of the education solution, therefore, rests on the shoulders of those service providers plan sponsors have selected to assist them with the plan’s operations. “The plan sponsors meeting their educational needs tend to leverage their existing partners,” says Michael E. Swann, Director, DC Strategy and Client Portfolio Manager at SEI Institutional Group in Oaks, Pennsylvania. “This makes sense because many have educational resources available at a reduced cost or included with existing services. The industry conference circuit and publications help augment plan sponsor and committee knowledge and bring topics to the forefront for further consideration and conversation among committees and with their business partners.”

Indeed, in the first several decades of sponsoring 401k plans, the industry focused on and honed education as it pertained to plan investments. This made sense since many felt this represented the greatest liability exposure. Today, retirement investment education is not only second nature for many, but its filled by media outlets well beyond the corporate conference room, including specialty magazines, comprehensive websites, and dedicated cable networks.

“Most plan sponsors have a pretty good handle on the benefits of having a diversified fund lineup, and are usually hyper-focused on performance and expense ratios of the funds in their lineup,” says Justin Goldstein, Director & Principal, Plan Advisory at Bronfman Rothschild in Rockville Maryland. “They use resources like Morningstar ratings, and even third-party scoring systems such as Fi360 and RPAG. That is usually where it ends though, and there is still a gap in their understanding of why they even need services like that, beyond the generic catchall of ‘we have to meet our fiduciary responsibilities.’ The specific gap is their skillset is the tieback to ERISA and the PPA. I know both of those things can sounds scary at first, but they are there to make sure plan sponsors know what to do. If you throw the term ‘safe-harbor’ out there, most plan sponsors will immediately start thinking about their matching formula. But both ERISA and the PPA provide additional safe-harbors that plan sponsors may not even be aware of…some of which they are most likely already doing!

With the investment side of things long ago taken care of, 401k plan sponsors have a renewed focus on the three F-words of offering employee retirement benefits: Fiduciary, Fees, and Financial Wellness. Here’s how plan sponsors answer questions related to each of these three F-words.

The first two of our three F-Words cater to the small group of corporate executives whose duties include overseeing the retirement plan. Of these, “fiduciary” stands apart as the most important, mainly because it contains the bulk of the liability potential. So important is meeting this need that smart plan sponsors bake it into the cake. “Plan sponsors needs regarding fiduciary roles are met within the typically quarterly committee meetings as fiduciary training is incorporated into agenda,” says Mark Olsen, Managing Director at PlanPILOT in Chicago, Illinois. “Sponsors heavily rely on their consultants to learn about their fiduciary duties and risks.”

Because it’s the executive staff, the level of detail address by fiduciary education dives deep into the mechanics of the plan. “Plan sponsors are aware that they carry a fiduciary responsibility in managing their companies’ 401k,” says Amy Ouellette, Director of Retirement Services for Betterment for Business in New York City. “Many plan sponsors question if they’re satisfying this requirement. In order to improve this confidence, and educate employees that their 401k provider is acting in their best interest, plan sponsors should check their provider qualifies as a 3(38) fiduciary under ERISA. By working with a 3(38) fiduciary, plan sponsors reduce their exposure to claims that they breached their own fiduciary duty.”

The problem with keeping abreast of the latest on fees is, ironically, the DOL’s 2012 401k Mutual Fund Fee Disclosure Rule. Because the DOL never formalized a reporting template, plan sponsors are left to the mercy of their investment service provider. “In my experience, the only educational information that small business plan sponsors receive is the 408(b)(2) disclosure and the copies of documents they receive from the CPA,” says J.R. Robinson, Founder of Financial Planning Hawaii in Honolulu, Hawaii. “These documents are almost never read by the plan sponsor. At best, they are filed.”

This is why it’s important to rely on a fiduciary adviser not affiliated with the relevant providers. Olsen says, “A periodic review of plan fees is led by the retirement plan consultant. A review from this perspective is paramount as relying on the plan recordkeeper to address the competitiveness of their own fees is problematic.”

Beyond this, it is within the 401k plan sponsors purview to demand an easy-to-read fee disclosure template, even if the DOL doesn’t currently require one. “To navigate pricing challenges,” says Ouellette, “plan sponsors should seek transparent pricing models to ensure they’re not missing hidden or buried services/costs. This is one area that has garnered a fair amount of awareness recently, forcing plan sponsors to become more educated on the fees their employees are paying. Many employers understand how pricing is set up at a high level, but are then caught unaware by fees. If plan sponsors are unsure about the amount they’re paying, it is recommended they request other quotes to ensure they’re not overpaying. Plan sponsors should continue to demand transparency on fees, as well as investment costs and decisions.”

Financial Wellness:
Our last F-word is a well-worn phrase with plenty of available resources and, unfortunately, too little understanding of demonstrable effectiveness. Thing are looking up, however, as, with each year of experience, financial educations are learning what words and what doesn’t work. “Plan recordkeeepers often have strong reporting capabilities for understanding financial wellness from a company-wide perspective,” says Olsen, “but also in drilling down into certain key demographic areas like age, income, years of service, departments, etc.”

Since this F-word focuses on employee needs, the solutions can be found in mass media marketing techniques.  “In terms of educating employees, plan sponsors can look for providers who focus on delivering advice,” says Ouellette. “For example, many 401k plans require individuals to opt-in for advice. Instead, plan sponsors can seek out offerings in which advice is available and active from the moment employees log in. Beyond this, employees expect the tools they use on a daily basis to be digital and on-demand — and the same is expected of their 401k. Providing readily-accessible information through digital platforms has proven to be the most effective way to deliver 401k advice.”

Answers from Beyond the Service Provider:
For plan sponsors who really want to learn as much as they can about these questions and more, there are trade associations that focus on the retirement plan industry. These organizations are generally not affiliated with service providers (although their programs may be sponsored by service providers), so they can offer a degree of independence 401k plan sponsors may find valuable.






“Plan sponsors tend to get advice from their financial advisers first, which is why it is important that the adviser is highly educated on what is going on in the marketplace,” says Terry Dunne, Senior Vice President, Managing Director of Millennium Trust Company in Oak Brook, Illinois. “It’s not just about being educated on the plan itself, but also being conscientious of how the market could affect design and implementation ideas. Then, plan sponsors usually go to their ERISA attorneys for further advice, as well as industry events put on by organizations like SPARK or PSCA.”

Olsen adds, “In general, there may be resources like PSCA, SHRM or other nationally recognized organizations that would be able to assist the plan sponsor with necessary education.”

For those not familiar with SPARK, PSCA, or SHRM, here’s how they describe themselves on their websites:

SPARK Institute is member-driven, non-profit organization that is the leading voice in Washington for the retirement plan industry. We help shape national retirement policy by developing and advancing positions on critical issues that affect plan sponsors, participants, advisors, service providers and investment providers.

The Plan Sponsor Council of America (PSCA) is a non-profit trade association supporting employer-sponsored retirement plans. For 70 years, PSCA has dedicated itself to serving the evolving needs of Defined Contribution (DC) plan sponsors who seek an unbiased source of industry information, education programs, and regulatory updates.

The Society for Human Resource Management (SHRM) creates better workplaces where employers and employees thrive together. As the voice of all things work, workers and the workplace, SHRM is the foremost expert, convener and thought leader on issues impacting today’s evolving workplaces.

But we need to harken back to the article referenced in our lead paragraph. When it comes to managing your company’s retirement plan, it’s not only about knowing what you know you need to know, it’s also about knowing what you don’t know you need to know.

“Many are drawing from plan provider resources, which have gotten much more robust in recent years,” says Davey Quinn, SVP of Investment Management at United Income in Washington, D.C. “However, there is still a lot left to be desired by some of these rule-of-thumb resources, which is where an experienced financial advisor and more personalized technology/analytics platform can help.”

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, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, 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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