Self-Assessment
In dealing with retirement plans on a daily basis, we see recurring themes and common misconceptions among plan sponsors, participants and even other providers. The following commentary incorporates some of the most common issues and problems we deal with when visiting with prospects and new takeover plans.
Click on the highlighted true or false to view the answer.
An investment policy statement is only utilized in the large plan arena where companies employee multi-person investment management committees
Investment Policy Statements are important even for the smallest plan. With an investment policy statement in hand, you document your process for investment selection, investment replacement and on-going monitoring.
There is no need for a plan sponsor to document due diligence when choosing a service provider to the plan. A company is free to engage any provider it chooses.
While the plan sponsor has no obligation to choose a specific service provider, it does have an absolute duty to choose a provider that will implement a plan to function in the best interest of its participants. Therefore, it is crucial to document a good faith effort to make the most appropriate decision.
The only fee we pay to maintain our 401(k) plan is the monthly check written to the Third Party Administrator.
401(k) plans are complicated savings vehicles, and all 401(k)’s pay for services rendered such as custodian fees, investment management fees, third party administration, recordkeeping and compliance fees. It is true that a plan can pay the entire cost to deliver the plan from imbedded mutual fund fees or other investments. These fees are usually asset based and are deducted from the gross return of the investments. Therefore, these types of fees are generally not invoiced, are not shown on participant or plan sponsor statements, and generally are found in contracts and prospectuses.
The plan sponsor is required to document and understand the total cost to deliver their 401(k) plan, including the cost for each component of the plan no matter how difficult it is to do so.
The task to document and understand the total cost to deliver a 401k plan is daunting and difficult. Undisclosed fee sharing arrangements abound in the world of 401k plans. Unfortunately for plan sponsors, difficulty in obtaining accurate fee information by provider offers no protection.
There is no need to review the features of the plan annually because 401(k) features are all standard and rarely change.
There is nothing static about a 401(k) plan document or the laws that govern them. The choices and features that can be incorporated into your document are extensive and can be completely customized to meet the prevailing goals of the plan. Furthermore, the plan sponsor’s financial situation often changes from year to year along with its business and workforce.
Only large plans can benefit from the services of a corporate trustee.
Utilizing a corporate trustee provides a separation of control function. Prudent internal control features benefit small plans as well as large plans.
Therefore it is crucial to document a good faith effort to make the most appropriate decision.