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401(k) Plans— Meeting Your Fiduciary Duty in a New Era
Excessive-fee lawsuits and the Department of Labor fiduciary rule are combining to cause sleepless nights for many plan sponsors who are unsure if they are meeting their obligations.

by John Torrence, managing partner, Masso Torrence Wealth Management

Do companies understand their fiduciary duty?
Employers sponsoring a 401(k) plan, even small business owners, by now should be well aware of their fiduciary duty and the consequences of not meeting the standard. There has been heightened focus on fiduciary responsibility in light of recent high-profile lawsuits and Department of Labor enforcement of the fiduciary rule. Lawsuits and enforcement actions claiming that employers have breached their fiduciary duty by allowing participants to be overcharged for administrative services and investment management fees are becoming far more common among small-sized companies. Plan sponsors must always base every decision made about their 401(k) plan on what is solely in the best interest of their participants and ultimately on improving their retirement readiness through qualified education and advice.

How can employers protect themselves?
The first step most plan sponsors should take would be to thoroughly benchmark their plan against other similar-sized companies in their industry. This starts with fully understanding what you are being charged for each component of your 401(k) plan including administration, investments and advisory services—not just as a sum total, but broken out separately. Plan participants overpaying for the basic services of a 401(k) plan is clearly a red flag for the plan sponsor. Putting the plan out for bid every three years to gauge current market pricing is also a best practice. Lowering 401(k) plan costs whenever possible not only helps the company, but more importantly, it benefits the participants, which is the employer’s primary fiduciary responsibility.

What about investment options within 401(k) plans?
That is another area that plan sponsors must focus specific attention upon to benefit participants. A prudent process of selecting investment options within a well-defined Investment Policy Statement establishes a solid starting point. Ongoing, documented periodic reviews to evaluate that the expenses and performance of the selected investments meet predetermined guidelines is critical for plan sponsors. With the growing popularity of target date funds (TDF) within 401(k) plans, their selection and fees are of great importance. If you are using a Fidelity or Principal platform for example, simply using their proprietary TDF without comparing it to other available options without regard to fees or performance is not in the participant’s best interest and can create a problem for a plan sponsor.

As a sponsor of a qualified retirement plan you bear enormous fiduciary responsibility. From staying on top of regulatory changes, evaluating plan expenses and investment options, all while assisting plan participants with their retirement readiness, it can seem daunting. Fortunately, there has never been a better time to partner with a knowledgeable fiduciary retirement plan consultant.

John Torrence AIF®, CRPS® is a managing partner at Masso Torrence Wealth Management/401(k) Plan Consulting in Marlton. Since 1999, Chris Masso, John and their team have worked with many local businesses to create efficient and effective qualified retirement plans.

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Published (and copyrighted) in South Jersey Biz, Volume 8, Issue 11 (November 2018).

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