That current 401k plan for your company? Sure, it seems to be performing fine. Yet, you can’t ignore the sense that you should compare 401k plans for your peace of mind, especially with some questions rising to the surface such as:
- Are we overpaying for our 401k plan with certain fees that may or may not be necessary?
- Could our plan be performing even better? What better fund options might be out there for a company like ours?
- Even beyond improved performance, are we providing employees the very best plan for their retirement goals?
- Why aren’t more employees enrolling in our plan?
- Could we do more to educate participants on the details of our plan?
Truth be told, the quality of plans for employers isn’t always of an outstanding quality. Unfortunately, we often see growing mid-size companies aren’t taking enough time to review and compare 401k plans. That leaves them vulnerable to a range of problems, from misunderstanding their fiduciary responsibility to being fined thousands of dollars by the Department of Labor.
That’s why it’s so important to benchmark your 401k on a consistent basis. Let’s take a deeper look at several reasons why this crucial action to compare 401k plans is essential for your perspective and for your protection:
Minimize Potential Audits And Fines From The Dept. Of Labor
In 2013, the Department of Labor (DOL) hired 1100 more auditors for compliance purposes. Last year, it fined businesses $693.3 million as a result of compliance audits, which was $100 million more than the previous year.
You can see where this is going. It’s not enough for a company like yours to simply offer a 401k plan. There are fiduciary responsibilities associated with your role as a retirement plan sponsor.
These responsibilities include1:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
- Following plan documents (unless inconsistent with ERISA)
- Diversifying plan investments
- Paying only reasonable plan expenses
Compliance audits – and fines – are massively on the rise, which we suspect is only going to continue to increase over the next several years. An audit can last months and if you believe it can’t happen to smaller companies, that’s not a good assumption to make.
Therefore, if the Department of Labor asks for documentation as proof that you’re fulfilling your fiduciary role, you’ll need to provide it in great detail or risk being on the receiving end of a very painful fine due to an audit.
Benchmarking your plan could help limit this possibility, showing how you are:
- Maintaining compliance with DOL regulations
- Providing educational materials to communicate all investment options to participants
- Keeping the plan’s fees reasonable to participants and competitive against similar plans
- Retaining an updated investment policy statement
- Making the plan available to all participants and encouraging enrollment
The competitiveness and clarity of fees appear to hold particular importance to the Department of Labor. Consider this statement from the Department :
“When you consider the fees in your 401k plan and their impact on your retirement income, remember that all services have costs. If your employer has selected a bundled program of services and investments, compare all services received with the total cost. Remember, too, that higher investment management fees do not necessarily mean better performance. Nor is cheaper necessarily better. Compare the net returns relative to the risks among available investment options. And, finally, don’t consider fees in a vacuum. They are only one part of the bigger picture including investment risk and returns and the extent and quality of services provider.” 2
Limit Potential Liability During An Employee Lawsuit
The Department of Labor isn’t the only party that you need to answer to as a plan sponsor. Employees who feel they’ve been misled on fees or haven’t been given clear communication can potentially sue their employers on grounds of plan mismanagement. Fortunately, benchmarking can also serve as an important point of reference in the event of an employee lawsuit.
For one, benchmarking can show you’ve done your due diligence in reference to how you compare 401k plans to ensure your current plan fees are reasonable. Additionally, if documentation proves that the participant was given ample and frequent opportunities to be educated on the plan but did not take advantage of it, it may provide you some potential protection as a plan sponsor.
“The lesson is to benchmark your plan’s services against appropriate peer-group data. It would be difficult for a plaintiff’s attorney to show that you were imprudent if you take that step and if the results are reasonable.”
– Fred Reish, Drinker Biddle, PLANSPONSOR Magazine
There’s More To Compare.
But There’s A Guiding Hand To Help.
In the second part of this blog post, we’ll take a deeper look at some of the other advantages that come with benchmarking your 401k so you can get a complete picture.
Then, to get the peace of mind on your 401(k) plan you need, talk to our fiduciaries at Fiduciary Financial Partners about receiving a free benchmarking report. It’s a terrific way to know definitively that your company’s 401(k) plan is truly the best for your needs.
To compare 401k plans and see how your plan stacks up, get FFP’s benchmarking report by calling 630.780.1534 – it’s the smartest thing your company can do today to Confidently Embrace Your Financial Future.
Nick Economos, CRPS is a dedicated independent Financial Advisor and Chief Retirement Officer at Fiduciary Financial Partners. He has a wealth of expertise in designing qualified retirement plans and participant education programs.
Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place.
1 Source: www.dol.gov/ebsa/publications/fiduciaryresponsibility.html
2 Source: A Look at 401(k) Plan Fees, U.S. Department of Labor, August 2013