15 Warning Signs That Your 401k Plan is at Risk


You don’t know how many employees participating in the 401(k) are on track to retire

The purpose of a retirement plan is to help employees retire. Do you track who is on track? If no employee is on track, what kind of plan do you have?

Your 401(k) plan investment performance is worse than the S & P 500

Is it because the investments are bad or your employees are poor investors? If they are poor investors, have you provided retirement education?

Your plan has an investment policy statement that no one follows

A high profile lawsuit found that those responsible for the plan weren’t following the investment policy statement. If you weren’t the one that signed the original contract, have you checked the file to see if there is an existing IPS.

Your 401(k) investment menu isn’t being monitored

Investments cannot be set it and forget it. The closest you can get to that is using an ERISA 3 (38) investment manager that takes legal responsibility for the investments. They also decide what to select and remove from the menu. The norm for benchmarking includes having an investment policy statement and using advanced statistical methods to comparerisk and return performance.

You think that your current and former employees (participants) pay no fees.

Even if the company pays for the recordkeeping and other administrative fees, your investments cost the employees something, typically found in an expense ratio. Have you read your disclosure?

You haven’t benchmarked the fees since you received the plan sponsor fee disclosure.

The disclosures were not to admire and file. The disclosures were meant to help you ascertain that the fees you authorize that your pay employees were necessary and reasonable. That would mean comparing to a benchmark or to other providers. Do you have access to third party research?

You or your HR Manager gives employees hints or guidance on investing.

While it is well meaning, it is prohibited by law.

Your advisor is a client or your brother-in-law.

Can you prove that they are credentialed? Are the employees getting paid more than an advisor that doesn’t have such good access to you? Are your employees getting what they pay for?

Your advisor shares no risk

If you are like most plan sponsors, you work with a broker that merely recommends but does not advise. Bottom line, if you don’t have a contract that says they are a fiduciary, you will be alone should you get sued by the Department of Labor or a ticked off former employee.

You think that your deep pockets investment provider is handling it (all the risk)

Few providers share any of your fiduciary risk. That includes those household name-brand providers that claim that everything can be so easy. Making it easy doesn’t mean removing risk.

A high number of former employees remain in your plan

What if one of them get’s upset because they aren’t on track to retire and sues you?

You checked yes to 404(c) to be protected from employees bad choices

Do you know what 404(c) means? Fred Reish, a prominent ERISA attorney, highlights that few companies actually meet the standard. The standard must be met annually to offer protection.

The executive that set-up the plan has moved on

You likely have been putting out fires and have not read the file on the plan. What was their due diligence? How much did they know about retirement plans? Did they pick providers based on credentials, expedience or brand name?

You have received no formal education on what it legally means to be in charge

As the responsible plan fiduciary, do you know that you have to put the employees’ interests first when operating the plan? If so, can you prove it to the regulators and judges? Many companies large and small have not.

You haven’t gotten a second opinion on your 401(K)

It is important to find advisors that are specially educated in plans. Most often they will take on fiduciary responsibility for their actions. They have credentials such as Accredited Investment Fiduciary. While the volume of assets under management may be comforting it does not protect you in a court of law. However, the quality of the advisors on the plan and their legal standing will go a long way to demonstrate your wisdom.

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 and Advisory services offered through LPL Financial, a Registered Investment Advisor. 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


About Envision Wealth Architects

Architecting and encouraging your vision of wealth and retirement planning. We help individuals and families design and build their financial life plan based on their unique values. We translate your vision of financial independence into a customized financial plan. We can help coordinate a team of professionals, such as legal and tax, to help you enjoy the construction. We guide retirement, tax, investment, insurance and wealth transfer planning... What’s your vision?™
This entry was posted in 401k advisor, 401k Fees, Department of Labor, ERISA 3(38) Investment Manager, Investment Monitoring and tagged , , , . Bookmark the permalink.

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