This year, maybe more than ever before, many - and many think most - plan sponsors will be learning a whole new way to think about their retirement plans, largely because of the new disclosure regulations.
The reason is that up to now most plans have been sold by commissioned salespeople selling retirement plan products with the assurance that the product was either cheap or free and that the provider would take care of all their problems.
It was a sales pitch. The collateral materials looked slick and talked about fiduciary services; and the provider's big brand name provided the warm-fuzzy security blanket employers were looking for; after all, who can blame anyone for choosing The Mega-Behemoth Mutual Funds inside the Colossus Insurance Company's bundled offering?
The plan sponsors who find out they've been in a higher expense share-classes for years may be surprised to learn that their insurance company was making a half-point spread or more on a fund's expense ratio simply because
(1) they using a higher expense fund providing them more margin for compensation,
(2) the company could trade at omnibus and was able to negotiate an even lower expense ratio with the fund company, and
(3) all this was before adding wrap fees, participant fees, extra charges on models, extra charges for low average account balances, etc.
All of a sudden, plan fiduicaries will likely begin to face questions from their participants about how long this has been going on!
"Why didn't I know about it?"
With social media, it won't take long for people to begin comparing their costs... and doing the math.
Despite all the current marketing hype surrounding 3(38) investment management fiduciaries removing fiduciary liability for investment management decisions, it's a safe bet that plan sponsor fiduciaries really still aren't off the hook. They'll have a lot fewer headaches, to be sure; but, the act of hiring a 3(38) manager is a fiduciary act in and of itself and it's common sense that plan sponsors will still have to have their own process for monitoring the 3(38) manager, including documenting the decision to keep or replace that manager. In short, the plan sponsor may never outgrow their need for a 3(21) fiduciary advisor to help them with this process.
But, there's a lot to learn, and it can seem overwhelming. After all, running the 401(k) or 403(b) isn't what businesses are formed to do - they're trying to compete within their own industries and make a profit!
So, how to keep up? There are numerous ways to keep posted on what's happening.
Here's IFG's contribution.
- The IFG website: Look for Benefits News under the Plan Sponsor section on the home page. That's a live feed containing virtually all the news breaking in the employee benefits world.
- Twitter: @JimLorenzen - This twitter feed provides a `heads-up' on breaking news. Headlines are tweeted with direct links to the various sources. Twitter allows you to scan scores of headlines quickly and easily.
- IFG on LinkedIn: If you don't have Twitter, you can follow on LinkedIn and receive an email `heads-up' on the same stories, plus hear some of the 'inside baseball' within the industry.
- Retirement Plan Insights Archive - an archive of prior issues of this newsletter.
If you would rather get `into the weeds' directly and sift through the DOL website on your own.
Here are some DOL releases, for those of you who speak DOLese... I wouldn't do that without an ERISA attorney.
Remember to evaluate your hidden internal cost - the cost of time and payroll devoted to this issue: How many hundreds of hours do CFOs and HR departments spend on this? Too much? Maybe that's another expense that could be trimmed. Too little? Maybe there's a hidden risk that could be the most expensive of all options.
