Is your 401K Okay? Tips for managing your company retirement plan

Paul McEwan | June 23rd, 2010

The past several months have certainly been rocky for 401k investors. And while the rollercoaster ride may not be over, the stock market appears to be showing signs of improvement. So what can your business do now that the comeback is underway?

Summer is a great time to review your company’s retirement plan. Review the fees and investment options and decide whether the plan still meets your needs. And since most plans have a calendar year term, you’ll still have plenty of time to make any changes.

Here are some best practices to help your company comply with current fiduciary obligations.

  1. Identify the fiduciaries of your plan. Every fiduciary must understand their obligations under ERISA and demonstrate loyalty to the plan, proceed with prudence, diversify investment options and act in accordance with plan terms.
  2. Ensure plan fees are prudent and reasonable. Fiduciaries should understand what fees the plan pays and assess whether they are reasonable. Fees that may be considered duplicative, excessive or unnecessary breach the fiduciary responsibility. These fees, which can be flat or based on a percentage of assets, can come in many forms, including transactional fees for withdrawals or loans, and general administrative or recordkeeping fees. The investment funds also have underlying operating fees and if your pension program is affiliated with an insurance company, there may also be an associated “wrap-around” fee for its asset advisory services.

Fees don’t necessarily need to be the lowest, but they must be reasonable and necessary. Proposed ERISA rules will require disclosing the fees that participants and you, as the plan sponsor, pay. Many fees are currently netted from earnings and difficult to identify, but you should be prepared to answer participant questions that may arise from future disclosure.

  1. Review your plan’s investment policy statement. Having a well-crafted investment policy statement (IPS) is essential. You must meet regularly with the plan’s investment advisors to review the quality of funds in the plan and determine whether they meet performance benchmarks stated in the IPS. If not, funds should be removed or replaced.
  2. Take minutes at the quarterly or annual meeting with your investment advisor. The minutes will help document that you have fulfilled your fiduciary responsibility. Your investment advisor should be able to help get this process properly documented.

If you would like assistance understanding your fiduciary responsibilities under ERISA, please contact your financial advisor.

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One Response to “Is your 401K Okay? Tips for managing your company retirement plan”

  1. Thanks for your great comments, Geoffrey. With respect to investments within a 401k plan, the same advice is true for plan fiduciaries, that is, making sure that high quality funds with reasonable expenses are available from which participants can select. As you suggested, most participants are not interested and/or not capable of implementing a disciplined process of allocating their account balance properly. For those participants, model allocation portfolios, target date funds or managed accounts should be made available within the plan. Of course, appropriate selection and monitoring criteria should be followed on any fund offered as an investment alternative in the plan, including these automated allocation funds/options.

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