Unlike other aspects of the employer employee relationship- the 401k rules says you must keep the interests of your employees ahead of your own. Do those that you hire have to do the same? No, not unless they sign a document saying they are taking on specific risks with the 401k rules. Some providers “hear no evil, see no evil, and speak no evil” potentially leaving you with a false sense of security believing what you will. After all you are the one responsible for being educated on these matters and doing your due diligence.
Paula Deen famously said “I’m your cook not your doctor”. In fact, unlike McDonald’s she never had to disclose the calories, fat grams and cholesterol in her delicious, butter filled treats. You might think that any attempt to sue her for causing a heart attack would be frivolous and thrown out. Does the same hold for employees participating in your retirement plan? No.
High Risk, 401k Rules, Plan Provider Scenario
You hire a broker (business card may say financial advisor) to help you select a company whose primary business is creating packaged investments, insurance or payroll. Often you select that firm based on features that favor your company rather than your employees, like payroll. Some firms assume that you do not want to pay for the costs of the plan and roll the costs into the investments the employees are saving in (you could pay yourself). With costs out of sight, you move on to business operations. With costs out of sight and you not pushing for a better deal, some providers may have an incentive to charge as much as they can. That does not help you with the 401k rules.
Lower Risk, 401k Rules, Plan Provider Scenario
You hire a financial consultant (ERISA 3 (21) investment advisor) to incorporate your vision, with those of your employees and the Department of Labor (arbiter of benefitting the employee). You select from a number of providers that sign on to take on the risk of the 401k rules- ERISA 3 (38) investment manager, ERISA 3 (16) administrator, discretionary trustee or independent Named Fiduciary. You have a employee benefit savings design specialist (third party admin and/or attorney) develop a savings design to equitably distribute your employer contributions. This typically allows more of the contributions to be allocated to those managers and executives that you wanted to recruit and retain.
Your consultant and your ERISA attorney help you monitor the plan on an ongoing basis to make sure that it stays in compliance DOL’s 401k rules. If you want to be even more focused on increasing retirement readiness, you would monitor employee savings percentages, participation and track retirement readiness against benchmarks you determine to make tweaks and tunes.
Ask your current providers if they are acting in your best interest (fiduciary) and helping you satisfy the 401k rules. Make sure they show you where it states they are a fiduciary in their contract. If you are unsure of the contract language, have an attorney that specializes in ERISA read the contract. Please let us know what you find out. Need help? Email me at james.brewer@lpl.com.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI.
