With the increased scrutiny and litigation of retirement plans, many businesses may be looking into their 401k and profit-sharing plans ensuring they are providing the best options for both their employees and themselves. What may have been satisfactory a few years ago may not be ideal today. With this in mind, we created a complete “to-do list” for 401k plans in 2017.

Fiduciary Rule

On February 3, 2017, President Trump issued a memorandum ordering the Labor Department to review the “fiduciary rule” that is slated for partial implementation on April 10, 2017, with full implementation on January 1, 2018. While most expect there will be a potential delay, the final outcome is still not clear. The rule was designed to require financial advisers of retirement plans to acknowledge their fiduciary status. As such, they would need to disclose any potential conflicts of interest, meaning that they would now be bound by law to act in the best interest of their customer. The rule does not change the plan sponsors existing fiduciary duty to their employees under ERISA but would hold advisors to a higher fiduciary standard. A delay would mean business as usual, where advisors may proceed as a non-fiduciary.

Review Your Plan Design and Investment Diversification

Companies evolve over time, including periods of growth or downsizing, so retirement plans may need to be adjusted accordingly. Plan sponsors should review their retirement plan design every few years to ensure that it still fits their company’s goals and employees' needs. As a part of this review, you should make sure the plan offers a proper investment lineup allowing your employees to build a fully diversified portfolio.

Review Your Plan Expenses

Deciphering exactly what you are paying in plan expenses can be difficult for plan sponsors and participants to determine. Fee disclosure regulations of 2012 require plan providers to show details of the fees they charge. This has made fee information readily available to plan sponsors and participants. As a plan sponsor, make sure you are reviewing these fee disclosures and evaluating the various services you are receiving independently. You are not required to pay the lowest plan expenses, but the fees must be reasonable for the level of services received. What is deemed to be “reasonable” is somewhat of a grey area determined by many things such as services received, amount of assets, employee count, and plan design. Thus, it is critical to have a documented decision-making process in place to evaluate plan expenses.

Understand Your Responsibility [Share Classes, Revenue Sharing and Proprietary Funds]

As a plan sponsor, it is your duty under ERISA to act prudently in the selection and continued monitoring of the plans’ investments. That includes determining the proper share class of mutual funds used in the plan. Making sure you have the lowest cost share class available can help as you document a prudent decision-making process. Again, if you don’t know, ask your provider what share class you have and what share classes are available to you. Funds that pay revenue sharing and 12b-1 fees tend to be more expensive. This can also make it difficult for plan sponsors and plan participants to determine the fees attached to a specific service. In many cases, revenue-sharing funds are used as a way to provide additional revenue to record keepers, third-party administrators, and advisors. Also, review the use of proprietary funds provided by your service providers. Ensure the funds are in your plans investment lineup based solely on merit and not for some alternative reason such as providing your record keeper with additional revenue. Transparency is critical. The lack of plan sponsors having a process to determine excessive fees, expensive share classes, and the use of proprietary funds have all been common areas of recent litigation.

Get Your Plan Reviewed

☐ Is my advisor a fiduciary?

☐ Has my plan design evolved with my company?

☐ Is my investment lineup diversified?

☐ Am I in the proper share class?

☐ What are my total plan expenses?

☐ Is my plan documentation adequate?

If you would like help answering any of the above questions, contact Chris Wagner today at 402-827-2300 or cwagner@lutzfinancial.com.

IMPORTANT DISCLOSURE INFORMATION