Is Your Retirement Advisor Helping or Hurting Your Company’s Retirement Plan?
Industry: Auto Dealership
Plan Assets: $15M+
Employees: 200+
I recently had the opportunity to meet with a 401k plan sponsor to conduct our comprehensive Plan Analysis & Benchmarking Report for their 401k Plan. It’s wise for all plan sponsors to benchmark their plan every few years to make sure their plan costs are reasonable. In fact, The Department of Labor (DOL) recommends that plan sponsors should conduct a periodic review of their 401(k) plan, including benchmarking, at least once every three years. I can’t tell you the number of times I speak with a plan sponsor to find out they have NEVER completed a plan benchmark or had it repriced.
This plan was a mid-sized plan. Over 200 employees and $15M+ in plan assets. (*Details of the plan have been changed slightly to protect company/plan). After reviewing their Plan Document, Fee Disclosure Statements, and Advisor Service Agreements I was shocked by my initial findings. A few areas immediately popped out:
The plan had close to 30% of terminated employees many of which were small balances. Not only do small account balances of terminated employees increase plan costs, but sponsors still have fiduciary responsibilities…and liability for them.
The plan had a smorgasbord of different share classes even when suitable lower costs options of the same fund were available. Inappropriate share classes can lead to increased costs to participants.
The plan didn’t offer certain asset classes (not necessarily any violations, but good practice)
Their current advisor was charging about DOUBLE the plan advisor cost when compared to the industry benchmarked cost for a plan of this size.
The auditing fee was also about 25% higher than other auditing firms were charging for a plan of this size.
After reviewing more of the plan’s details and getting our RFPs back from other 401k Providers, I was absolutely stunned. Their current recordkeeper costs were 6x’s MORE than the next 401k recordkeepers costs. The average cost per participant was also close to $1,500. (that’s among the highest costs I’ve seen)
We reviewed our 40+ page Plan Analysis & Benchmarking Report with the sponsor and pointed out the numerous areas for concern; the sponsor seemed to be in almost disbelief of how many issues our report revealed. These issues not only added to the plan expenses, but were also substantially increasing the sponsors fiduciary liability and should be corrected ASAP.
Part of our proposal was to replace their current advisor and take over as the Retirement Plan Advisor for the 401(k) plan and immediately implement our Action Plan to turn around these red flags with their current 401k Provider. They were with a reputable 401k provider so our recommendation was to assist in negotiating a fee reduction to help reduce costs which we were confident we would get.
With the changes we recommended, our conservative estimate was IFS could save the plan and participants about $100,000 a YEAR! That’s right…$100,000 and most of our corrections could be implemented almost immediately.
The reality was their current retirement plan advisor was inexperienced and didn’t focus on business retirement plans so they didn’t possess the expertise and knowledge to know when things got out of hand. Their plan advisor should have made these changes years ago which would have saved the plan and participants a significant amount of money.
It’s scary the effect of working with an inexperienced retirement plan advisor can have on your company’s retirement plan and the future retirement of your employees. (The plan advisor was the owner’s financial advisor who took over the plan and made few changes over the years even though the plan’s assets doubled since they took over).
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