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"It is impossible for ideas to
compete in the marketplace if no forum for The Business Forum Journal
By Guy Baker, MBA, MSFS, MSM, CFP an d Joseph L. Cannava, CLU, ChFC
Plan sponsors operate under intense scrutiny from regulators, employees, the media and even competitors. Having been a Broker for qualified plans now for over 40 years, I would like to share with you some insights we have discerned from our experience. Maybe it will help you gain perspective as you contemplate the answer to this question. Let us look at some of the common complaints and problems we see regularly among the clients who are referred to our firm. First: Not all plans are created equal. I know this may come as a shock to you, but some plans are more expensive than others. We have seen a wide range of expenses for these plans. If the plan is not well designed and not administratively efficient, this will cause internal conflicts and cost hours of frustration and angst. I could not begin to tell you the number of complaints we hear about plan service. Participant statements are late, inaccurate, they don't have enough detail, no one seems to react to my concerns, I can't reach anyone to help me. The loans are wrong. The amortization schedules are inaccurate." Ever said any of those things? Second: Things change. How many ERISA interpretations, DOL regulations, Congressional laws have been passed in the last 15 years that have affected your plan? We see many companies with plans totally out of compliance and they never even knew it. Compliance can be on the great disasters for a 401 (k) plan. ERISA attorneys will tell you virtually every plan they review is out of compliance. We have heard HR Directors complain "their other provider never made them do that!" We often wonder whether the client really understands the potential downside to non-compliance? Third: Trustees are at personal risk. As fiduciaries to your plan, it is important you know there are certain requirements must be maintained to eliminate the potential for legal redress. Plan investments are not a passive review. Trustees need to take an active role and make certain each investment option meets the "prudent man" standard. DOL 404( c) offers a safe harbor exemption to trustees, but few if any know how to safely utilize this regulation. This safe harbor only addresses access and diversification. It does not address performance. Do you have an Investment Policy Statement? Are you following it? Do you monitor the investment options in your plan quarterly in compliance with your IPS? Most plans do not. Fourth: Employee education means education not information. How many of your employees truly understand how to select their investment choices? Sure, vendors come in periodically and present additional information about the plan. But is it educational? Are the employees learning anything they can apply to their own benefit? We Find most "educational" programs are solely aimed at explaining the funds. Very little time is spent showing employees how to use the plan, what asset allocation is, how much to their risk tolerance? Plans that are not providing access to this information are taking they need to retire comfortably and what fund allocation/selection would be best suited undo risk. Fifth: Trouble shooting and plan design options are a creative part of making the plan work for the company. There are numerous design options available as well as nonqualified options for top management. Many plans fail the Highly Compensated tests and have to return contributions. This is aggravating to the employees and avoidable. There are ways to redesign a plan to optimize the benefits for the highly compensated and still pass all of the tests. Is your broker able to help you with these issues? What to do? As a plan fiduciary and perhaps a trustee, it is important you understand the risk implications and problems associated with these five issues. With personal liability the penalty for not being compliant and not conforming to the 404c rules, is it wise to not review your plan and make certain you meet the "best practices" for a fiduciary and trustee. A good Broker can be of great assistance in helping the plan committee avoid many of these pitfalls. While there is no way to completely eliminate the risks, there are certain steps most professionals agree will greatly reduce the potential for problems. If you have any concerns or issues, you can reach me at 40Ik@btagroup.net Or you can telephone me directly at 800-858-4332.
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