Companies that offer employees a 401(k) plan must recognize their responsibility to act in the best interests of those employees, says David C. Barth, AIF, a financial consultant at AXA Advisors, LLC.
“Regulators such as the IRS and the Department of Labor are not as concerned about whether you made a perfectly timed investment decision or have the absolute lowest cost plan for your employees,” Barth says. “It’s more about having a process that confirms you are satisfying your fiduciary duties, acting on behalf of your plan participants, and offering a menu of prudent investment choices at a cost that is reasonable for the services you’re receiving. Is there documentation that offers evidence that it’s not just a roll out the plan and forget it type of mentality?”
The challenge for many businesses, especially the smaller ones, is finding time to address these important fiduciary duties. Fortunately, there are professionals with experience with retirement plans who can provide support.
“You need a process in place to manage your plan and if you don’t have one, you should reach out to a qualified professional and figure out the steps to help ensure you’re doing the appropriate due diligence,” Barth says.
Smart Business spoke with Barth about best practices when it comes to managing your company’s 401(k) plan.
What is a fiduciary best practices approach?
The biggest part of this approach is forming a committee with multiple people inside the company who work with your 401(k) plan and make decisions that pertain to it. Typically, you’ll have the owner or president, a financial person such as the CFO, an HR representative and in some cases, a member who represents the rank-and-file employees to represent the other side of the organization. Consider hiring an outside advisor with fiduciary credentials who can help you through the process of forming the committee and managing your duties. Then it’s a matter of ensuring that the committee meets on a regular basis and documenting what is discussed at those meetings. Create and follow an investment policy statement that guides your company’s investment decisions. The goal is to create structure, regular dialogue and documentation around your 401(k) plan.
How does this process serve the best interests of individual 401(k) plan participants?
The committee needs to realize that it is making decisions on behalf of the masses and not on an individual basis. The goal is to structure an investment menu that provides aggressive investment options for the participant who wants to be more aggressive along with more conservative options for the conservative investor, as well as a vehicle to assist participants in making choices that are appropriate. It’s giving the participant population the ability to have quality choices in different categories so they can structure their plan to meet their own unique needs. Employers typically want to do right by their employees. But if they are lacking the right guidance from an outside fiduciary consultant, it may not be happening simply because they don’t know what they don’t know. If you develop and follow a process to review and monitor funds that is guided by a professional, you’ll have a diverse investment menu. You’ll have a mechanism in place to swap out an underperforming fund and possess the data you need to negotiate fee reductions from your service providers when appropriate, thereby reducing the fees for your participants.
How can you evaluate your plan advisor?
Work with somebody who spends a lot of time in the qualified plan world. If they are experienced specifically in retirement plans and fiduciary needs, that’s important. Make sure there is a through and regular review to evaluate the advisor team, what they do and who they service. Ideally, your advisor will help you work with your plan provider to better understand your participant demographics and target investment education in a way that enables your people to maximize the value of their investments, and, ultimately their retirement readiness.
This article is for informational purposes only and is not intended as legal or tax advice. David Barth offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers insurance and annuity products through AXA Network, LLC. AGE 115601 (6/16)(Exp 6/18).
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