Do you know what your hidden costs and liabilities are?
Offering employees a 401(k) plan is a benefit you are proud to offer and your employees appreciate. But what are the real costs and responsibilities associated with this benefit?
It Starts with The Fiduciary
What’s a fiduciary and who is ours?
A fiduciary is an individual (CEO, CFO, HR Exec, Owner) or entity (Board of Directors) that function on behalf of the plan to operate and control its operations. According to the Department of Labor, the fiduciary has specific obligations under ERISA to consider the fees and expenses paid by the retirement plan. Fiduciaries are held to a high standard of care and diligence and must ensure that they do not let preoccupation with other things or personal connections to a plan vendor prevent you from discharging their duties solely in the interest of the plan participants and their beneficiaries.
If you don’t know who your plan fiduciary is, it might be you. If you have no co-fiduciary to protect you from that liability, it might be wise to call (760) 809-8734 before you get distracted and are left unprotected.
Be Aware – It’s Personal!
Many fiduciaries have no clue that their level of liability is personal. As the fiduciary of a 401(k), your house and your personal assets are on the line, not your vendor’s. You have a personal liability for your plan. It is also important to note that the fiduciary is personally liable for any fines in the event the Department of Labor audits your business.
But I Have a Vendor for That
Has your vendor ever notified you of your personal liability?
Are you aware of all of the costs and fees associated with your plan?
In a typical plan with $5MM in funds, the average business might overpay $10,000 each year. The employees might overpay $50,000. How is this still a “Benefit,” and does the fiduciary of your plan understand all the costs paid by the employer and employees well enough to explain them?
Lower costs matter to employees too…
Who’s responsible when employees discover that 20% of their 401(K) gains are being handed back in the form of fees?
It’s important that companies, and especially the fiduciary of the company’s plan understands and takes this responsibility seriously. There may A business offering a 401(k) with even a few million in funds should discover all the costs BEFORE an employee discovers this on their own.
My employees would never sue me, right?
I would caution any company with a plan to assume a worst-case scenario so they are prepared. In 2016 some owners who disregarded this advice paid a huge price, as shown in this article[i] and this one[ii].
An Independent Audit Can Save Costs and Reduce Risk
If you haven’t had your plan analyzed by an independent analyst in the last 3 years, you are overdue and overexposed. You might be overcharged, too. Brokers are compensated by commissions, so they are likely making recommendations first based upon how they are incentivized, and second (maybe a far second) by what is best for you.
Without an audit and benchmark, it is unlikely you will catch overpayments. Your staff is likely too busy and may not have the knowledge or experiences to find these types of errors, so they are likely to do what all humans do – rely on the status quo. This is what commissioned sales people rely on and it is why you mustn’t burden internal HR staff with the type of audit and benchmark best done by an outside analyst.
Whomever you call, I recommend that you make sure you are not having your commissioned broker “audit” the plan he/she is selling you. The truth is that “advisors” often have no responsibility other than to collect commissions on products they “advise” you to buy.
Your Best Outcome
Knowledge is power. Once your costs have been analyzed and reduced, and measures have been taken such as installing a co-fiduciary to protect you, you can remove worry and unnecessary risk and feel good about the benefit you’ve set up for your employees. Having the best education, participation, and service for the reasonable fees you and the plan participants pay is not just your best outcome, it should be your only acceptable outcome.
For a no-cost assessment of your 401(k) plans costs and liabilities, call DCI Solutions www.dci.kirkprojects.com, (888) 395-0809