Did your 408b2 review show the fees approved are excessive?
The 408(b)(2) regulation provides that a service arrangement is not reasonable unless specific disclosures are made to the hiring fiduciary. Why you should care?
- Lawsuits are costly. MassMutual joined Ameriprise and Fidelity as defendants of 401k lawsuits regarding their own company plan. What? The employees are claiming their employer put their business interests ahead of theirs with respect to their 401(k).
- Why not help your employees get more from your employee benefit plan.
- If they don’t retire, they may increase your health care costs and decrease productivity.
408b2 should help you assess 401k and 403b fees
It is commonly known that most employees and responsible fiduciaries don’t understand 401k fees. It is the responsibility of the company to know that the fees are fair and reasonable. The problem is that they are hidden. Most people believe that 100% of their deferral goes to their investments. Some companies think that they pay the fees. They may pay a fee for administration but in my experience do not pay the investment fees. The investment and broker/advisor fees are where most of the expense lies. If you can’t see the 401k fees how do you know if they are fair and reasonable?
408b2 fee disclosure for 401k and 403b plans
In a small business the fiduciary has many hats. If you have an ERISA based plan aka 401k or single vendor 403b, you have received the 408b2 fee disclosure. I have yet to meet a company that has done anything but file it. I have heard of 200 plus page fee disclosure documents, which may explain filing it. We often make decisions based on emotion and justify them with logic. I am already overwhelmed working 60 hours. I am sure that my brand name 401k provider must be handling this.
What services do your employees get for the fee?
Service providers typically don’t take or share in the fiduciary risk that you do. If you are not working with one that must by law work in your interest, you should be skeptical about any reports given to you. The term financial advisor is a grab bag for many different types of advisors. I often hear that my advisor does all of that or my provider’s relationship manager does all of that.
- Do you monitor that they actually do what you believe they are doing?
- Do they have a contract or menu of services?
- Would your employees be better off having one advisor that advises the plan and one that works with the employees?
- The ultimate judge of fee is what services are being received for that fee. Ultimately are your employees on track to retire?
Independent help with your 408b2 review
The increasing action from Department of Labor investigations and class action lawsuits is showing that “set it and forget it” plan implementations are risky. Do yourself a favor and get an independent assessment of your fees from a firm that provides an independent assessment. I believe you should work with a retirement plan consultant to source the document and then to help guide you through the assessment. The assessment process is not all checkboxes. Working with a retirement specialist such as an Accredited Investment Fiduciary, Qualified Plan Financial Consultant, ERISA Attorney, etc. should not only decrease your risk but help your employees march towards a dignified retirement.
Please let us hear from you regarding your experience with 401k fee disclosures aka 408b2 and 404a5.
(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.
