Protection Matters
Business Owners Have a Legal Obligation to Make Sure Fees in Their Plan are Both Fair and Reasonable
Business Owner Warning
The law requires you to “Benchmark” your plan on a regular basis. As the plan sponsor, you have a legal “fiduciary” obligation to make sure that your plan fees are fair and reasonable and that all decisions are made for the sole benefit of the employees. Of the plans examined in 2014, the Department of Labor found 75% of them to be illegal and the average fine was $600,000.
Source: BrightScope: Fines, Penalties, and Audits
$600,000
The average fine by the Department of Labor for a plan examined and found illegal
Business owners, also known as plan sponsors, have a legal “fiduciary” duty to provide a competitive plan that is benchmarked to determine how competitive the plan really is and if the fees are both fair and reasonable.
Plan providers don’t make this easy by providing fee disclosures that are 15 to 45 pages long and use very opaque language in how this information is relayed. In addition, very few plan providers are making business owners aware of their obligation to benchmark for fear of showing the true cost of the plan that was sold to them. That hasn’t stopped the Department of Labor who recently hired 1000 new auditors (according to CFO Daily) to find plans that are out of compliance. The fines are significant. What’s more disconcerting is the fact that employees are suing their employers and having plenty of success. Not only does The 401(k)ompany provide access to a low-cost ultra competitive plan, we also serve as a 3(21) fiduciary on each plan in order to help manage risk for the employer.
Disclosure isn’t clear enough
Although fee disclosure rules went into effect in 2012, collectively we have learned little from them. Over 50% of 401(k) plan participants believe they pay no investment related expenses or that their employer pays them and 35% of 401(k) plan sponsors indicate they do not know the average expense ratio (of the funds) in the plan that they had a hand in choosing.
401(k) fees cost Americans nearly $164 million per day, and can have the effect of reducing a participants’ balance available at retirement by 40% to 60%. Its time to get free from the fee factories that dominate the 401(k) marketplace.
Source: Pensions & Investments/Deloitte & Touche 2018 Survey
%
of plan sponsors don’t know the expense ratios of the funds they’re choosing
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