Do You Have a Maytag Repairman                          As Your 401k Advisor?Maytag Repairman #2
Welcome to Ok401k First Newsletter for 2010! 
 
Greetings!

We did a summary below on returns of the basic peer groups  Morningstar categorizes and tracks using our unique Fi360 software program.  Wow!  What a difference one year can make.  In 2008 financial experts looked into the abyss and thought that perhaps the country was facing the 2nd depression and soup kitchens!  For some of your  employees that panicked and locked in their losses at the end of 2008 and sat on the side lines in 2009, they missed out on a fantastic year in equities that could have helped repair their portfolio.  Timing the market in a 401k plan is never a replacement for age old practices that utilizes portfolio diversification and rebalancing.   
 
Also, recognize the character up above?  I have an interesting story below suggesting that there are Maytag Repairman who sell 401k plans and there are real 401k advisors that don't wait by the phone for someone to call them.  Which one do you have?  
The 2009 Market Performance Summary From Morningstar!  Wow!  Junk Bond Funds Sector Lead The Way At 47.44%!    
 
The following is a summary from our Morningstar Fi360 data base revealing the 9 basic sectors or Style Box tracked by Morningstar.  These sectors represent all the funds tracked by Morningstar in each style box.  For example, in 2009 Morningstar tracked 1,564 funds in the Large Growth category style box.  The average return for all of the Large Growth Funds tracked in 2009 were 34.46% (median).   2nd fund up from the bottom shows how crazy the junk bond or High Yield Bond fund category was in 2009.  You can compare your top performing 401k investment choice  the median returns below.  Remember, these returns are smack dab in the middle of their peer group.  That is why they call it the "median"return.  As an Investment Advisor, it is Ok401k's goal to have all of our clients 401k plan funds in the top 25th percentile of their peer group
 
 
Style Box            Total Returns       Total Funds
                                                        In Peer Group in 2009
 
Large Value               23.14%                 1,115
Large Growth             34.46%                 1,564 
Large Blend               27.01%                 1,803         
Mid-Cap Value           34.15%                    408
Mid-Cap Growth         40.20%                    710
Mid-Cap Blend           34.50%                     408
Small Value               29.12%                     330
Small Growth             34.61%                     679
Small Blend               28.42%                     589
High Yield Bond         47.44%                     466
Intermediate Bond      12.89%                     977
 
These peer groups do not represent any individual fund.  They are category or peer groups from Morningstar.  Data is reviewed and provided by Ok401k's Fi360 analytical software used by leading fiduciary advisors for their 401k plan sponsors.  Past results are no promise for future returns. 
Do You Have The Maytag Repairman Servicing Your 401k Plan?   
 
Do you remember the Maytag repairman TV commercials from the 60's, 70's and 80's?  Maytag is gone now.  On April 1, 2006, the Whirlpool Corp. completed its acquisition of Maytag Corporation.  The Maytag Washing Machine Company was founded in 1893 by businessman Frederick Maytag. In 1925, the Maytag Washing Machine Company became Maytag, Inc. During the Great Depression of the 1930s, the company was one of the few to actually make a profit in successive years.
 
This mythical repair man in the TV ads up above was always waiting around in his office for the phone call that never came.  Maytag of course wanted you to believe that their quality was so good; you never needed a visit from their repairman for your washing machine.  Of course 401k participants are not washing machines they do need visits.  
 
Ok401k's version of this repairman hero is quite the opposite.  We are proactive and insist on being on site to help your employees.  Our job as 401k advisors is dedicated to assisting your employees with investment advice thus improving quality of investing and most of all, for your 401k plan, increasing participation and deferrals.  When lower paid employees are putting more money away, the higher paid/executives may be able to contribute more and pass their annual tests without the plan putting in a costly Safe Harbor 401k plan.  I wish selling and servicing a 401k plan was as easy as selling a washing machine though some insurance agents and stockbrokers practice this hands off style approach.  
 
What motivates employees to participate in and contribute to voluntary savings plans? According to a new study by KPMG, the answer lies in how regularly their company holds retirement seminars and especially from Ok401k's point of view, if there is an advisor providing "real" investment help.  The study found direct links to exist between how often a retirement seminar is offered and increased levels of 401k activity-especially among those employees lower down on the pay scale. Participation rates by non-highly compensated employees are 11.5 percent higher with plans that offer frequent seminars, than those with no seminars. For highly compensated employees, participation is 6.5 percent higher when seminars are more regularly available. According to this survey by KPMG titled; "The Effects of Financial Education in the Workplace, assistance with financial planning may also enhance employee loyalty, improve labor relations, and boost morale."  So for many reasons, when it comes to honing financial-decision making skills, the more education offered, the better especially if it's real investment advice and help for your employees.
 
Most stockbrokers, life and health insurance agents that sell 401k plans are perfectly happy to have the 401k vendor's service people do the necessary enrollment or education meetings once the sale is made. And, employers sometimes confuse their effort of handing out enrollment kits as some kind of special advice. 
 
Some 401k vendor's presentations are pretty slick and complemented with colorful power point presentations.  As independent 401k advisors we work with many 401k providers.  We are familiar with most mutual fund and insurance company 401k provider literature they use for education and enrollment meetings.  Our experience tells us that if you truly want to increase participation and deferrals in your 401k, you need an excited advisor to act as cheerleader in charge on the ground and doing some coaching.  I am convinced that this is why 401k plans across America suffer from poor participation (less then 70% average); poor deferrals (6% national average) and most of all the employees' investment choices are not properly diversified.  Typically we find in our research and on site investigation that the previous advisor was never around providing real investment help or assistance.
 
We just returned from Nashville last week (yes Music City Tennessee) where we assisted a new employer group and their employees with becoming aware of the new 401k plan.  Now we could have used the 401k vendor's service representatives for the enrollment and education meeting.  But, our new client understood the difference between investment advice instead of education for their employees where the vendor's service person may be providing the meeting!  
 
Our new client was delighted that Ok401k would go anywhere their employees were and help with investment help.  There is a difference between education and handing out enrollment kits which any non licensed person including your secretary can do.  Our new client's employees seemed surprised and delighted for the first time to have a real live investment advisor on site providing real investment advice.  It's an interesting attitude change when you meet with employees who have been saving for many years in their 401k and are begging for investment help and advice.  Most investors in America don't know the fundamentals of diversification and the importance of rebalancing their 401k once per year. 
 
Want to increase participation, deferrals and offer your employees the opportunity to enjoy a better quality investment experience?  Insist that your advisor is providing real investment advice instead of just handing out enrollment kits or turning the meetings over to the 401k vendor.  That is just pure laziness.  Make your advisor work for their money and provide fiduciary advice.   Ok401k can provide investment help on site and provide valuable fiduciary support to your 401k committee.  It can make a difference in the long run for your employees.  
The Worst 401k Target Date Funds To Offer Your Employees Are.......
 
Guessing in business can be dangerous especially if you're economists on Wall Street or the trustee or fiduciary on your company 401k plan.  Regarding the science of economics 101, Oklahoma's own Will Rogers once said that; "an economist guess is liable to be as good as anybody else's" Edgar Fiedler who seemed to not like Ivy Leaguers said; "Ask five economists and you'll get five different answers -  six if one went to Harvard."   
 
An Objective Analysis That Compliments Your 401k!  Guessing as a strategy in trying to evaluate a target date fund inside your 401k plan could have far reaching and terrible consequences for your employees who are relying upon you more then ever to pick the appropriate menu of funds.  Guessing is not an option.  There are very advanced software systems leading 401k advisors use to evaluate fund choices these days.  Not to be out done, Ok401k enjoys one of America's leading 401k analyzers called Fi-360 Tools software.  Fi360 Tools are considered by many investment professionals to be a leading, global resource for investment fiduciaries, providing research, analytical, and reporting services. The array of products and services offered under the Tools business line are designed to aid advisors like Ok401k who serve as or support investment fiduciaries. 
 

Pushing Their Own Choices!  The first place to begin for employers in trying to decide to offer target date funds is what inventory of target date funds are available to you to select from?  Is it just the ones from your 401k vendor?  Many 401k vendors push their own proprietary target date funds and will not provide you access to other choices even if the other choices are better.  Having your 401k provider decide your target date selection by default is like having the Captain of the Titanic tell you, "Don't worry, we only have enough life boats for half the guests on our maiden cruise but we are unsinkable, so what difference does it make?"  There is a science out there in selecting 401k investments and you better be sure that your target date funds fit your employee's goals and objectives.  You see, ERISA mandates that 401k Trustees (you the employer) have an Investment policy review/process in place to select and monitor your investments that are offered to your employees.  You and your 401k committee should be well insulated from potential litigation if your 401k advisor has a well documented and well thought out analytical process on your investment choices and target date funds.       
                                               
We Are #1!  A few months ago I attended the Plan Advisor Magazine's National 401k Advisor Conference in Orlando, Florida.  I was the only 401k professional from Oklahoma to attend this important national conference for advisors that specialize in 401k plans.  Most of the leading 401k mutual fund and insurance company vendors were there exhibiting.  These fund providers that sell 401k plans were of course saying that their bond funds, international funds, mid cap, small cap and large cap funds were all the best, especially their Target Date Funds.
 
Just Two Flavor Styles!  For the purpose of this Ok401k story, target-date mutual funds come in two flavors. Unlike Braums ice cream stores throughout the southwest which has an incredible selection of ice cream from funky monkey to mint chocolate chip which is my son's favorite, you better be aware of these two different target date flavors or philosophies because the one flavor the target date fund manager uses may not fit your employees' style of investing.   One target date style anticipates your worker at retirement date cashes out in their 401k and moves their money to an IRA.  The second flavor or strategy is the assumption that the worker does not cash out at retirement and keeps their money in your 401k plan during retirement.  What strategy is good for you and your employees?  As an employer you better fully understand when you pick a Target Date Fund family for your workers, if the fund family is managing the money to retirement date or to 20 years after retirement which we at Ok401k think is ridiculous and full of liability.   This is called the "Glide Path". 
 
 
Retirees Are Not Leaving Their Money Behind!  We asked Fidelity, one of America's largest 401k vendors, what percentage of assets do they retain when a worker retires.  The answer we received was less then 50%.  This means, that if all the rest of America's retirement plans are like Fidelity's 401k plans, the typical retiree is taking the money from their 401k plan faster then Johnny Depp playing John Dillinger in a bank heist movie.    
 
Glide Path Does Make A Difference!  Target date funds are the perfect auto pilot style of investing for your workers.  I personally love them because quite frankly the vast majority of employees are incapable of selecting and monitoring their portfolios during the working years.  Target date funds allow a worker to pick the year they are going to retire.  For example, if I am 30 years old that would mean I have about 35 years to retirement and would pick the 2045 Target Date fund portfolio.  The fund company then manages the money for the employee, rebalances the portfolio at least annually and diversifies it between fixed income and equities.  Some target date funds are more aggressive then others and have a higher exposure to stocks.  Some target date funds only use their proprietary fund managers which may be a disadvantage and some companies can have a "Glide Path" that manages the money way past the year your employee has retired which is really the "gist" of this discussion today and a name you as an employer should become familiar with.  The GLIDE PATH is what can get your 401k plan in trouble folks and you better become aware what this term means. 
 
Minus 8% or Minus 43%?  Quick, what 2010 Target Date fund from what famous fund family suffered almost a 43% loss in 2008?  On the other side of the spectrum, what famous 2010 Target Date Fund from another fund family experienced only an 8% loss in 2008?  Which loss do you think your 63 year old worker would have liked in 2008?  An 8% loss or a 43% loss in their 2010 Target Date Fund?  The 2010 target date fund that lost 8% had a conservative low exposure to stocks at the workers assumed retirement age in less then two years.  , the other one that lost over 43% had a longer glide path thus heavy exposure to stocks way past the workers retirement age.   
 
Dismal Returns! Let's put this into perspective.  If you averaged out all the 2010 Target Date fund returns in 2008, the average 2010 Target Date fund lost approximately 28%.  So, this means that more then likely your worker with one or two years to go to retirement lost over one fourth of their retirement portfolio in a 2010 Target Date Fund which is equivalent in Ok401k's eyes to medical malpractice.    Our Ok401k review of most 401k target date funds found quite a few fund managers are assuming (first three letters of assume?) that your worker will not take their money out of the 401k plan and they will keep managing it way past retirement.  Is this what is going on now in your 401k plan when a worker retires?      
 
Industry Wide Embarassment in 2008!  At Ok401k we thought this was quite embarrassing to the Target Date Fund industry when the whole enrollment process to employees was to encourage them to let a professional 401k money manager diversify their 2010 portfolio, rebalance it for them and help them invest professionally for the long term!  For the average Joe Blow 401k participant just two years from retirement that does not know much about investing, I thought the results were quite dismal for professional money management in the target date industry.   Currently Congress,  along with the Department of Labor and other interested parties,  are investigating the impact of target date funds on participant accounts after the 2008 melt down.
 
The Glide Path Game! Now, let's finish this story up with the glide path game you better be aware of.  Some target date funds, typically the more conservative ones, build their glide path to end on or about the anticipated retirement age of the participant, the "targeted date,"  like the 2010, expecting the participant will take the money in cash---either personally or in an IRA and make a new investment decision.  That design reflects a belief that neither the manger or the target date fund nor the plan sponsor knows what the participant's retirement investment decision will be.  We at Ok401k believe that this is the more "prudent" decision for the 401k committee. An employer should make sure that the purpose of a target date fund is to reduce volatility as a worker nears retirement.  Some target date managers structure their glide paths, to continue beyond retirement.  We think this is rather presumptuous and unprofessional and may jeopardize the employees balance at retirement.  These target date fund managers have a glide path that goes almost 20 years down the road assuming that they will still be managing your employees money at retirement, thus their portfolio at retirement will be a lot more aggressive then perhaps it should be for someone at retirement.   These aggressive portfolios got pounded and lost workers close to retirement a lot of money.
 
Bottom line?  You better have a philosophy in place and understand how your employees feel about their money at retirement if you are offering target date funds inside of your 401k plan.  Will they take the money and run or keep it with you till they begin to take withdrawls in retirement?  Ok401k has a complete report on over 250 target date funds and their strategy.  We can help you ascertain if their money management strategy fits your employee's strategy.  Give us a call at (405) 603 4986 or email me at terrencemorgan@ok401k.com 
Bloomberg.com Hard Hitting Newstory Reveals 401k Hidden Fees.      
 
More then ever, employers in Oklahoma and around the nation are seriously looking at their 401k plan fees both revealed and the ones 401k vendors don't want you to know about.  The reason?  When the market is down, this is the time employers should be making changes or asking their 401k provider to lower these high fees that affect their employees retirement balance.  
 
At Ok401k we have seen many great news reports from the media that educate employers about hidden insurance or mutual fund company fees. For the first time one of America' s leading business media reporters have finally got the hidden 401k fee game right.  Click on the link below to access this stunning report on how your employees may be paying more then they deserve to invest in your 401k plan at work. 
 

 
What is the next step?  If you supervise your 401k plan, you have a fiduciary responsibility to be aware of these fees.  Why?  The world "fiduciary" means simply that you are responsible for other people's money.  And, that means specifically your employees 401k money.  Your employees are relying upon you to get them the bang for their investment buck.  We can help you.  At Ok401k we have a unique comparison program that reveals these hidden fees in an easy to understand and colorful report.  Call us at (405) 603 4986 for your free review.     
 
Terrence Morgan, AIF
President
 
The Oklahoma Employers 401k Bill of Rights.  (What your agent and 401k vendor owe you.)     
  The Employee Retirement Income Security Act (ERISA) requires that fiduciaries of employee benefit plans (that is you the employer) administer and manage your 401k plan prudently and in the interest of the participants and beneficiaries. In carrying out these responsibilities, plan fiduciaries often rely heavily on professionally trained 401k advisors like Ok401k for help. A recent report by the staff of the U.S. Securities and Exchange Commission (SEC) released in May 2005, however, raise serious questions concerning whether some insurance agents, stockbrokers and consultants are fully disclosing potential conflicts of interest that may affect the objectivity of the advice they are providing to their pension plan clients.  For example, a stockbroker or insurance agent and bank representative may have their own proprietary funds they want to sell inside your 401k plan.  Obviously these 401k vendors selling agents may be able to make more money selling their own proprietary funds inside your plan.   
 
  The gold standard in the future used by quality employers when screening 401k advisors is to hire an Investment Advisor Representative (IAR) who will sign an agreement stating they will be a co-fiduciary on your 401k plan.  Under the Investment Advisers Act of 1940 (Advisers Act), an investment adviser representative providing consulting services has a fiduciary duty to provide dis-interested advice and disclose any material conflicts of interest to their clients.  
 
  Ok401k meets regularly with potential clients.  We are always amazed about the many groups we meet who seem unaware of what their basic fundamental fiduciary responsibilities are.  Your 401k mutual fund, insurance company and/or bank is a vendor.  Vendor's always need supervision.  If you don't have the professional training to supervise your 401k, smart employers hire a fiduciary advisor  to make sure their 401k vendor is giving you and your employees the best bang for your buck.  Therefore, Ok401k came up with the following "Employer 401k Bill of Rights." 
 
Your Employer 401k Bill of Rights
 
Article 1.  The Right To Real 401k Investment Advice.  As my consultant, please provide my employees with real investment advice and investment help not investment education which is as simple as handing out enrollment kits and wishing my employees good luck.  My secretary and I can do that.  (Investment Advisors are able to provide dis-interested investment advice to participants.  We do not sell proprietary investments.  There is no incentive to sell one product over another.  Registered Representatives, insurance agents and stockbrokers may have another agenda.   Only an Investment Advisor Representative can sign an agreement with an employer accepting co-fiduciary responsibility.  Ask your advisor if they are registered with the SEC or a state securities regulator as an Investment Advisor Representative and will sign a co-fiduciary agreement.  If so, they must provided you with all the disclosures required under those laws (including Part II of Form ADV))
 
Article 2. Please be unbiased in recommending 401k vendors.  We don't want plans that you can make more money on certain funds or vendors.  (This is a common problem in the 401k business.  Agents, bank representatives and stockbrokers can make more money recommending certain investments or 401k providers). 
 
Article 3.  As my advisor, please review my 401k investments quarterly and report to me annually to satisfy my fiduciary responsibilities.  Our investments must be in the top 25th percentile as compared to their peers.  (Some "lazy" advisors rely upon the investment data from the 401k vendor and do not 2nd guess the 401k vendors.  Good 401k advisors compile their own data and perform their own research on the 401k investments in your plan.   Allowing your 401k vendor to provide you with the annual review data may result in mediocre or poor performing funds being left in your plan rather then being replaced. 
 
Article 4. As my advisor, please provide me with an Investment Policy Statement (IPS).  This IPS will enable me to have important written criteria in place that guides me and my 401k committee when reviewing our 401k plan.   Not having a customized IPS is like trying to build a new sky scraper without a blue print.  Don't you deserve a custom designed IPS instead of a "cookie cutter" IPS?    
 
Article 5.  The right to fair disclosure of the total cost of participation.  As my advisor please provide me with a complete disclosure of all investment fees my employees incur in the 401k plan.  You have a fiduciary responsibility to know exactly all fees in your 401k plan.  Some advisors can get paid more in commissions by having a wrap fee on top of your investments .  Insurance companies either put this fee on top of your funds or slip you in a higher share class.  You have a duty to know those fees and your advisor should be forthcoming.  Typically these extra wrap fees are negotiable. 
 
Article 6.  Do not allow my company and employees to be put into a 401k contract with a vendor that has surrender fees.    This "a-sleep at the wheel" consulting is soooo 20th century.  We at Ok401k usually see unprofessional advisors allowing their client to sign silly 401k contracts like this.  If you are in a 401k vendor contract like this, fire your 401k advisor and hire a real one.  Ok401k has a way to help you get out of these contracts. 
 
The six articles up above are your basic 401k Employer Bill of rights.   We have more.  Call us and ask us what the other four (4) Bill of Rights are.  
 
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In This Issue
Morningstar 2009 Peer Group Performance
Do You Have The Maytag 401k Repairman?
Worst Target Date Funds To Offer Your Employees Are....
Oklahoma 401k Bill Of Rights
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrence Morgan, AIF
Ok401k, Inc.
(405) 603 4986
Terrence Morgan, AIF is a Registered Representative of and offers securities though Wilbanks Securities, Inc. Member FINRA & SIPC.  Securities activities supervised from Wilbanks Securities, Inc. at 4334 Northwest Expressway, Suite 222, Oklahoma City, Ok.  73116.    (405) 842 0202.  Fee based through Wilbanks Securities Advisory.  Fiduciary status requires employer being given WSA ADV form Part II and a fee agreement must be established.