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Transparency in a Non-Transparent World
Today's plan sponsors have a dilemma. One of their primary jobs is to know exactly how much the plan costs, how much they pay for each component of service, which plan provider entity is receiving what revenue flow from whom? Most of the "mainstream" 401(k) plan providers are not so transparent. Most are not licensed as a fiduciary entity and therefore have lax disclosure requirements compared to fiduciaries.
Often they are bundled plans without many if any checks and balances. This also hurts transparency.
Laws in progress may help; we shall see. In the last 20-30 years many attempts at legislating transparency were made and all failed.
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Common Mistakes
1) Assuming Transparency: The non-fiduciary entities that dominate the 401(k) market use the word fiduciary whenever possible. Unless they take on the fiduciary liability in writing, it doesn't mean anything. Review your service agreements in detail. Ask them to put it in writing. Note: We see plan sponsors performing cost studies on a regular basis with their non-transparent plan and comparing it to a non-transparent proposal. Complete transparency must first be achieved, and that is always in doubt when working with non-fiduciary entities.
2) Not Demanding Transparency: It's not only your right to demand transparency, it's your responsibility. We recommend using a information gathering form that every entity involved in delivering your 401(k) plan MUST complete and sign. We have such a form that we'll give you. Contact us.
3) Assuming you know the actual plan cost: For the same reasons as above, you need to demand transparency. Nothing is free. Make sure you match up every service with a cost, and understand how the funds arrive there.
4) Not using Real Fiduciaries: A plan sponsor's life becomes much easier when they work with independent fiduciaries. You should still demand transparency, you'll just have the peace of mind of knowing you have it with ease. We recommend hiring an independent RIA (registered investment advisor) the only investment pro required to act with fiduciary integrity. Ideally, this local fiduciary brings an ERISA 3(38) RIA, that is also independent.
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What to Do Next
Problem Solved: use an ERISA Section 3(21) independent advisor (RIA) that insists on bringing an ERISA Section 3(38) independent advisor (RIA) with them. They both have strict disclosure requirements built into their licensing so that complete transparency is the norm from day one. They'll be watching each other as well as the TPA, record-keeper and custodian, that are also independent. Great checks and balances - a fiduciary wouldn't have it any other way.
If you for some reason are delaying working with fiduciaries then start DEMANDING TRANSPARENCY from your non-fiduciaries. It's a lot of work, but work that must be done to protect your plan participants.
Contact us to get our information gathering form designed to help sort out what is going on inside your plan. We will even help you with interpreting the responses of the various parties currently providing your plan.
We may be able to provide a free analysis of your plan, contact us for more information.
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