When it comes to defined contribution retirement plans, employers have numerous goals. As I meet with them, there are two objectives that I hear frequently from those that sponsor a 401(k) plan. One is that they want to encourage greater participation and higher rates of saving to help company employees achieve financial security in retirement. Just as important, they want to make sure highly compensated executives and company owners can make the maximum contributions allowed by law.
As a 401(k) or 403(b) plan sponsor, you have the opportunity to make a positive difference in the lives of your employees. With January behind us and New Year’s Resolutions fading fast, one resolution that employers can help employees keep alive is to progress along on the path toward financial security in retirement. An important step is making sure their retirement savings are properly invested.
New Year’s is a time to set goals and begin working toward achieving them. Employers that sponsor 401(k) and 403(b) plans can help employees improve their ability to enjoy a secure retirement by communicating with them about financial issues during this time of the year as one part of an effective year-long education program.
A record number of 401(k) and 403(b) plan sponsors – 38% – are actively seeking new plan advisors, according to a recent Fidelity Investments survey. That’s not a surprise given changes in the retirement plan industry. Among other things, the Department of Labor’s new Fiduciary Rule requires employers to confirm their advisors are acting as fiduciaries and in the best interests of their clients. Advisors who are unprepared have caused some employers to interview other advisors.
408(b)2 Provider Disclosures have created confusion for employers who sponsor 401(k) and 403(b) plans ever since the rules first requiring them took effect in 2012. To make matters worse, with the June 2017 effective date of the Department of Labor’s Fiduciary Rule, employers’ responsibility with respect to the disclosures increased.
There’s good news for employers! Many have been on edge as they read about the “excessive fee” lawsuits filed against retirement plan fiduciaries, some of which have made their way to the U.S. Supreme Court. Or they’re shaken as they hear about the detailed fee document requests and questions from Department of Labor auditors to 401(k) and 403(b) plan sponsors and the fines and penalties that can result from DOL investigations.
While lawsuits and investigations have served a purpose in lowering plan fees, a side effect is that many plan sponsors, in their concern to meet compliance standards, have made a search for the lowest fees such a priority that they have unwittingly overlooked the best way to serve plan participants! In fact, when I meet with employers, they often first tell me they need to reduce plan fees to create a “hedge of protection” for themselves.
A Qualified Default Investment Alternative – more commonly known as a QDIA – is a provision available to 401(k) and 403(b) plans that reduces the potential personal liability of plan fiduciaries while improving the ability of participants to build toward retirement. For many employers whose plan doesn’t currently have a QDIA, only a few steps are required to take advantage of its benefits.
The Department of Labor’s Fiduciary Rule, which changes the 401(k) and 403(b) investment management landscape for both plan sponsors and advisors, took effect June 9th. Are you ready? As a plan sponsor fiduciary, your responsibility – and potential liability – just increased!
In previous blogs, we discussed how Target Date Funds can be confusing for retirement plan sponsor and participant alike. Such uncertainty can result in serious consequences: an increase in potential liability for plan sponsor fiduciaries and missed retirement income goals for participants. Now we turn to a superior investment solution for 401(k) and 403(b) plans: managed accounts.