A federal judge ordered the president of Columbus-based Clark Graphics, Mary Clark, to restore $505,551.46 to the company’s two employee retirement plans. The order requires the restoration of all plan losses for which the defendants are liable plus appropriate interest. The Department of Labor (DOL) asserted that “Clark Graphics’ owners …failed in their fiduciary responsibilities as plan trustees by neglecting to monitor the actions of the plans’ administrator.” Imagine now that the DOL walks into your office and asks you to show evidence you monitored your providers and their fees. What would you do?
Are you 401k fees high, average or low?
BrightScope, an independent 401(k) research firm, provides an online comparison of the 401k fees you authorize your employees pay against similar plans. Comparisons typically are available for plans that have more than 100 participants. Be sure to go to their website and type in your firm’s name. Be sure to note that they provide an overall score and a specific evaluation on 401k fees. You may score high score relative to other plans but may find that your fees are high. If you feel that your 401k fees are okay, then you should be prepared to defend that position to current employees, former employees and their lawyers, as well as the Department of Labor.
BrightScope attempts to calculate the effect of the plan’s deficiencies on the employee. The Department Of Labor notes that the difference of just one percentage point in 401k fees (1.5% as compared with 0.5%) over 35 years dramatically affects overall returns. If a worker with a 401(k) account balance of $25,000 averages a seven percent return, the worker will have $227,000 at retirement with the lower 401k fee and $163,000 with the higher fee, assuming no further contributions.*
Provider monitoring and benchmarking
If you don’t have a benchmark, how do you know how you compare? The 401k Book of Averages provides simple comparison of 401k fees on a low, average and high basis. Should your question be: how do I compare to the lowest and not to average? What is behind what that plan is getting versus yours? The high plan can be justified based on the services received. If your unhappy employee wants to assert that you hurt their plan because of high 401k fees, don’t you want to be armed with the answer? That could help you avoid some big headaches by a class action suit lawyer or an investigator from the Department of Labor.
Is the report you are using today developed by the same people you have outsourced plan administration? If so, do they share in any liability you face (you’ve had that verified by an attorney)? This is a sample of a thorough independent fee monitoring report.
* February 2013 Press Release, “Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries”, U.S. Department of Labor, Employee Benefits Security Administration
BrightScope is not affiliated with or endorsed by LPL Financial.
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