3 Vital 401k plan risk factors to check your plan health

Checking 401k plan health 401k plan reviving_text_11422

Recently, a Yale Professor raised blood pressures when he sent a letter to 6000 plan sponsors asserting that their plans did not pass these questions. He also said that he had gotten his information from publicly available sources. These sources rate plans using the long form tax filing for your plan according to their proprietary methodology. Your plan tax filing can be found at efast.gov.dol. Fines from the Department of Labor and class action lawsuits have cost plans tens of millions of dollars. Sometimes the issue was a simple as the plan sponsor did not use the same due diligence in picking the 401k provider that they did for other vital company services,

Every time I go to the doctor the nurse always:

  1. Checks my blood pressure
  2. Checks my temperature
  3. Checks my heart rate

Then the nurses asks why are you here today? Even if it is a check-up and everything is fine, I get a bill. With a family history of high blood pressure, heart attacks and stroke, I am glad.

401k plan risk factors.

  1. Do you know how your employees’ investment returns compare to the S & P 500?
  2. Do you know how many are on track to replace 80% of their pre-retirement income?
  3. Do you know if the fees that you authorize them to pay are reasonable based on the services they receive?

Are you sharing your 401k plan risk?

I recommend starting with a simple diagnostic such as the three questions that I pose. As a fidicuary you may potentially face the scrutiny of the Department of Labor. They are the ones that created the plan fee disclosures that became law last year. Unfortunately, many plan sponsors expected that their plan providers handled it. Unfortunately, those providers in most cases are not fiduciaries to the plan. This left you the plan sponsor holding the bag that you may have been unaware of.

  1. Are you working with an advisor that is a fiduciary?
  2. Are any of your providers, taking on fiduciary liability?
  3. If so, have you had an attorney familiar with the legal standards for retirement plan review the documents and their insurance policy?

If you can’t answer all of the questions affirmatively, at minimum you should do what Fred Reish recommends. Doing a benchmarking or a Request for Proposal. I believe you will get more out of the benchmarking, especially if you use a firm like ours that has access to and can interpret third party data sources. The linked report will give you some idea of what a 401k plan risk MRI looks like.

As with most things, it is better to have a check-up and have a clean bill of health rather than be found in cardiac arrest because of a class action attorney or a Department of Labor auditor that could cost you millions!

Think you might benefit from a 401k plan risk check-up? Please email me at james.brewer@lpl.com to learn more.

(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


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This entry was posted in 401k Monitoring, 401k Review, 401k Risk, Fee monitoring, Fiduciary duties, Investment Monitoring and tagged , , , . Bookmark the permalink.

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