Marc I. Machiz, Director of the Philadelphia Region of the Department of Labor Employee Benefits Security Administration (DOL EBSA ) indicated plans to focus on fees during audits. Machiz stated that he expects the investigations will attempt to determine who is at fault for excessive fees and why the excessive fees were incurred. Machiz proffered six questions that the Philadelphia Region believes are important in relation to this project:
Excessive 401k Plan Fees- Who is at Fault
• What do the disclosures look like?
• What do the fiduciaries look at?
• Is there something that justifies the high fees?
• Is it the fault of the disclosures?
• Is it the fault of the service provider?
• Is it the fault of the named fiduciary plan sponsor?
DOL Investigation Excessive Fee Crackdown
Is this new? In 2011, I co-sponsored “Surviving a DOL 401k Audit” with the DOL EBSA and Andy Wang, Esq., of Wang Kobayashi Austin. DOL EBSA does educational outreaches. One of the participants, a CPA, whose firm does financial audits of plans said “That DOL lady scared the “expletive deleted” out of me. Since then the DOL fee disclosures have launched making it easier to do fee audits.
Ronald J. Triche, Esq., APM, ASPPA’s Assistant General Counsel and Director of Government Affairs for ASSPA wrote an article titled “Philadelphia Region of the EBSA to Focus on Fees in 401(k) Plan Audits”. He provides a DOL investigation checklist that I doubt many plan sponsors could quickly get their hands on. That may explain why DOL EBSA audits lead to damages 72.1% of the time in the 12 months running up to October 2012.
Assessing Your 401k and Determining if Your Fees are High
I maintain that the starting point for plan sponsors should be asking
- Are the majority of your participants on track to retire?
- Are your employee’s investment returns better than the S & P 500 over the last 5 to 10 years?
If you have evidence to support “yes” answers, you certainly must be doing something right, even if you don’t know what it is. In that case, you should find out what you are doing right, and make sure that you document the process moving forward.
If your answer is “no or I don’t know”, it likely is your fault. Then the next questions are:
- Do you have high fees compared to other plans (you must independently benchmark to know)?
- Are the services your providers deliver in line with the fees that they charge?
- Are you using an investment share class that is no longer appropriate for the size of your plan?
Act Now or Your May Pay More Later
As an ERISA 3(21) investment advisor fiduciary, I stand ready to help with an independent assessment. You may choose to work with a non-fiduciary broker for your personal investments. However, as a fiduciary to an ERISA plan you are responsible for the money of your employees AND their beneficiaries. From a risk standpoint, when you are in charge of managing other people’s money, many endorse working with someone that shares in your fiduciary burden. A Google of 401k lawsuits will show many fiduciaries that likely wish they had.
(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