What to Expect from Your 401(k) Advisor

This is the second installment in a two-part series on selecting financial advisers for 401(k) or 457(b) plans. Read part one here.

Benchmarking Assistance

With the Department of Labor’s (DOL) ongoing focus on fiduciary responsibility, plan fiduciaries are being expected like never before to justify the decisions that they make. This is evident from all the recent litigation claiming fiduciary breach by plan sponsors and their service providers. Benchmarking has been prevalent in investment decision-making for many years as the DOL has expected plan fiduciaries to provide prudent investment options. In order to show that the plan fiduciary exercised prudence, the fiduciary could use benchmarking reports to demonstrate how the plan’s current offerings compare to other product offerings in terms of cost and performance.

Now with the DOL’s push for documented prudence in the area of service provider compensation, benchmarking has moved into a new arena. The plan advisor should be able to obtain benchmarking for both investments and service provider fees for use by plan sponsors.

Vendor Management Assistance

The advisor should help the plan’s sponsor manage plan vendors by providing perspectives on services and costs of plan record keepers, administrators, outside trustees or custodians. The advisor could provide sample questions to the plan sponsor for vendor requests for proposal or requests for information. The advisor might also offer to review vendor responses to RFPs and RFIs. If the plan sponsor does not want to issue RFPs or RFIs, the advisor could provide assistance with less formal means of vendor management by ensuring that plan sponsors analyze and document vendor decisions.

It is important to remember that the DOL has made clear that satisfaction with the status quo when it comes to vendor services is not enough in discharging fiduciary responsibility. The plan fiduciary must make continued and ongoing determinations that the plan’s then-current service providers are providing necessary services for reasonable compensation.

Fiduciary Compliance Assistance

Plan fiduciaries have numerous ongoing responsibilities. Advisors can help them keep track of some of these requirements including annual notices that must be distributed to participants. The advisor may also follow up with third party administrators to coordinate the distribution of notices and the adoption of required plan document amendments. If the plan is new or if significant changes have been made to the plan, the advisor may help coordinate the drafting and distribution of a summary plan description or summary of material modifications to all plan participants, as appropriate.

Plan sponsors should consider periodic self-audits by an independent third party to ensure that the plan is in compliance with applicable laws. The plan’s advisor can help facilitate such an audit. The audit can identify needed corrections prior to an actual audit by the IRS or DOL, but it can also provide an opportunity to improve benefits or reduce administrative costs. The plan sponsor may want to consider using the IRS’s self-correction program, known as EPCRS, to self correct any identified errors that are approved for correction through the program. Some practitioners even suggest that plan sponsors use EPCRS periodically because the plan may go on a “do not audit” list for several years following the use of EPCRS.

Fiduciary Education

When is a plan sponsor also a plan fiduciary? Who else is a plan fiduciary? Can the plan sponsor delegate any or all of its fiduciary responsibilities? Plan sponsors may have these, along with many other questions about their fiduciary responsibilities and the consequences of violating those responsibilities. The advisor can provide the plan sponsor initial and ongoing education on fiduciary issues. Many plan sponsors do not properly understand these rules, so this is another area where the advisor can be of valuable assistance.

Ongoing Legislative and Regulatory Updates

There is that universal truth that everything changes, nothing stays the same. This is especially true in Washington. The advisor can be a valuable resource for plan sponsors to stay abreast of new and pending legislation from Congress as well as new regulations from the DOL or IRS that may impact the administration of the plan. Helping the plan sponsor stay compliant with new regulatory requirements will be appreciated by plan sponsors who might have no interest or access to information about retirement plan regulation.

Employee Communications and Education

Communication is often the plan advisor’s greatest skill. Plan sponsors should look to the advisor to assist with enrollment meetings and participant education meetings. These meetings can be a great opportunity for a plan advisor to influence participant actions to improve plan participation, contribution levels and sound investment choices. The plan sponsor can look to the advisor to continually share the message of retirement readiness with participants to improve the overall success of the retirement plan.

Bottom Line – Having a Go-to Retirement Plan Resource

A retirement plan advisor has likely performed his or her job successfully if the advisor is the first person the plan sponsor thinks of in connection with the company’s retirement plan. The 401(k) advisor should be an invaluable partner for the plan sponsor. If the advisor has demonstrated that he or she has the knowledge to trouble shoot plan problems and understands the plan, the advisor will become the plan sponsor’s go-to resource for all things plan related. Because some third party administrators have so many plans for which they provide plan administration services, a plan sponsor may feel like just another number. The plan sponsor may expect that the advisor will serve as the liaison for the plan sponsor and other service providers. The advisor should be expected to coordinate the plan actors to provide the plan sponsor with a better overall experience. 

Excerpted from a report by Christine Cushman, JD, director, Advanced Consulting Group, Nationwide.