When we go to McDonald’s, most of us don’t expect to get healthy food. McDonalds serves kids and adults. We go there because it is quick, convenient and offers a fun experience for those of us with kids. McDonald’s does not hire celebrity chefs or nutritionists for each of its locations. It makes no claims of nutritional value. It focuses its energy on the operational efficiency that provides profits to its operators and shareholders.
Ronald McDonald does not hold itself out to care for the nutrition for the billions it has served. The responsibility of nutrition is on you. Even when they provide the nutrition information, many people do not take the time nor do they want to look at the nutrition of the Big Mac.
As a parent, you are responsible for the care of your children. If you only feed them fast food are you responsible? Yes. Often we see TV exposés of parents with overweight kids, simply eating food that has no nutritional value. Parents have been sued for negligence, with social service agencies sometimes removing their kids.
401k plan review and other employee retirement plan reviews
What does this have to do with your 401k or other employee retirement plan? If you are using the standard off-the-shelf 401(k) plan of your provider(s) you are getting the equivalent of fast food. Similar to fast food chains, these providers answer to their shareholders. It is your responsibility to monitor what they have to offer and probably others, to figure out what is best for your employees.
The law considers you an investment fiduciary, responsible for the care of your employees (participants). The relationship is analogous to a parent and child. You are in a special relationship of trust. You are responsible for the provider(s) selected and what’s on your plan’s menu. Your employees can only select the investments and the features of the providers you chose. By offering a retirement plan, you are indicating that you have approved all of the elements of the plan. Even if you don’t have auto enrollment, you are representing that what you have picked will help your employees retirement. If they happen to get sick, lose money because your plan’s menu has not been set up protect against large losses, you are responsible.
Retirement Education and Retirement Investment Selection and Monitoring
You are likely working with an investment professional that is a registered representative AKA stock broker. Many of them choose menus by selecting at least one of each of the Morningstar style boxes. If so, that is meant for a knowledgeable investor to create a balanced long-term, retirement portfolio. Are your employees knowledgeable investors? Has anyone explained that this was the stock broker’s intent? Many employees pick a little of each or whichever ones show the best recent performance. Even if you are using a Qualified Default Investment Alternative (QDIA), usually a target date choice, are you monitoring and benchmarking it against its peers?
You wouldn’t let a three-year-old have the same freedoms as a 21-year-old. As a parent, if you knew that all your kids ate for the day was French fries you may demand eat salad for dinner! Are you or your providers looking to see what investment options your employees are using? As a responsible fiduciary, you should consider the demographics of your employees in determining your investment options.
401k advisor: Do you have a broker or an investment advisor?
Seeking out providers with credentials such as an ERISA 3(38) investment manager, investment fiduciary, independent fiduciary, or Accredited Investment Fiduciary gives you the equivalents of cardiologists, nutritionist and child psychologist. All of these doctors take an oath to work in your best interest. What kind of professional are you working with?
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities offered through LPL Financial. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI