What Keeps You Up At Night?
Managing a 401k plan brings with it added responsibilities and concerns. Companies don't generally provide formal training with the assignment. Many plan sponsors and administrators don't understand the importance of their role. Those who do understand their role have different concerns. Let's dive into the concerns plan sponsors generally have.
One of the most common misconceptions about managing a plan is understanding who is liable for plan decisions. So, who holds the most liability? The plan fiduciaries. According to the Cornell Law Dictionary, "A fiduciary duty is the highest standard of care." Each plan must have at least one named fiduciary. This fiduciary may not be whom you think it is.
In a recent study conducted by J.P. Morgan Asset Management, 43% of all fiduciaries were not aware they were fiduciaries (J.P. Morgan Asset Management, 2017). Nearly half of those held to the highest standard of care don't even realize it. That is scary. Imagine having a child at your home and not knowing you are the parent or legal guardian. While there are some obvious shortcomings to the analogy, it does illustrate a similar point.
OneAmerica asked over 1,000 plan sponsors, "What is keeping you up at night?" 57% of the respondents indicated that fiduciary responsibility was their top concern (Plan Advisor, 2018). You can see how understanding your role impacts what worries you. Identify who is a fiduciary on the plan.
One of the most common first questions I get from plan sponsors is, "can you save us money?" We live in an age of commoditization. We can compare the prices of virtually anything from anywhere in the world within seconds. Retirement plans remain one of those services you cannot easily compare prices through an internet search. Pricing is complex and dependent on a variety of services rendered. This fact doesn't let plan fiduciaries off the hook.
Though it's challenging to compare 401k prices by searching the internet, finding lawsuits for excessive 401k fees isn't. There are many ongoing lawsuits by former employees alleging breach of fiduciary duty. It shouldn't come as a surprise. Each dollar spent on fees is a dollar that could have been earning interest in a participant's retirement account.
So, how do you make prudent decisions regarding plan fees? The question shouldn't be whether or not you have the cheapest plan. If I'm shopping for the cheapest car, I could probably find someone who would pay me to haul their clunker off their driveway. That doesn't mean I made a prudent decision as a buyer.
When it comes to 401k, it is necessary to have a process to evaluate fees. Benchmarking can be an excellent method of doing this. Rather than concentrating on the costs, benchmarking allows you to qualify the expenses relative to the services received and plan size.
Financial wellness is a new industry trend. NAPA shared survey results for its 2019 industry trends. Financial wellness was the second "most significant concern for plan sponsor clients." (National Association of Plan Advisors, 2019). What is financial wellness?
Financial wellness is more than retirement readiness. It's providing participants with the tools and knowledge to improve all aspects of their financial lives. Financial wellness is a significant concern.
Too many plan sponsors confuse investment returns with financial wellness. Not all investments in a plan are there to yield potential high returns. People also forget that past performance is no guarantee of future returns. Investment return is one of many factors to be considered in an investment lineup. Financial wellness is a goal plan sponsors can get behind.
The worries we discussed today are a few of many that keep people up at night. Every plan is in a different stage and has different needs. Working with an experienced professional gives you confidence. If your 401(k) plan keeps you up at night, consider getting a second opinion on it.
J.P. Morgan Asset Management. (2017, October 10). Let's be clear about fiduciary status. Retrieved from am.jpmorgan.com: https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/lets-be-clear-about-fiduciary-status
National Association of Plan Advisors. (2019, August 12). What Are Plan Sponsors Worried About? Retrieved from https://www.napa-net.org/: https://www.napa-net.org/news-info/daily-news/what-are-plan-sponsors-worried-about
Plan Advisor. (2018, February 5). Plan Sponsors Need Help Managing Concerns and Priorities. Retrieved from www.planadviser.com: https://www.planadviser.com/exclusives/plan-sponsors-need-help-managing-concerns-priorities/