In all my professional experience, there has been no problem more pervasive and more frequent with any employer-sponsored retirement plan (like a 401k) than an almost total lack of any real education provided to the employees who participate in the plan. Furthermore, in today’s market and financial climate, there is no problem more potentially devastating to both employee AND employer than this one.

 

 Whether you’re an established business with a 401k plan, a new upstart thinking about one, or an employee who is utterly lost as what to do right now, the following information is an absolute, unequivocal must-read.

 

 For the employee it’s a simple clear cut matter of having your hard-earned retirement monies invested in a manner which may or may not be in your best interest. By that, I’m referring to what kinds of mutual funds or other such investments you really have in there, and are they really what you should be holding given your unique and specific retirement goals? Well…? Are they? (Hint: If your reply is “I don’t know” then you have plenty company…probably over 90% of our readers.)

 

For the business (and by extension, the business owner and executives) who sponsor such a plan, this can be just as much your problem as it is your employees’. I know –sounds a bit crazy, right? Nope. It isn’t. As the sponsor of 401k (or other retirement plan), your business has an inherent fiduciary responsibility and liability to that plan and the employees. Now there’s a lot that falls under this banner, but I want to focus on a couple  of specific areas that are of critical importance. Enter ERISA Rule 404c and the Pension Protection Act.

 

 1)      Education. Education. Education. I’m willing to put money on this becoming an even bigger problem than it already is for employers. I recently took over a 401k plan where nearly every single one of the employees thought they were invested one way, and were really invested another. How could this happen you ask? It’s simple. Fifteen minute enrollment meetings in a group of fifty just won’t cut it. You need to be demanding a lot more from your 401k provider or advisor if all you get is a once a year visit to sign up a few new employees. Also the response, “Just go to the website and pick your mutual funds,” is truly unsatisfactory to most employees. They need help! A lot of brokers and 401k plan providers out there are a “Love ’Em and Leave ’Em” type. They get the plan and that’s the last you hear from them.

 

2)      Investment Selection & Fees.  Whether the CEO or the 401k plan picked the mutual funds, the employer/plan sponsor is ultimately liable. I’ve seen too many plans with a very poor/small selection of investment options that really isn’t what any prudent investor would consider properly diversified. Furthermore, a great many plans out there have their fees and charges well embedded and hidden from plain view, and only a Tulane Summa Cum Laude Advanced Calculus graduate could decipher them. If your 401k plan doesn’t spell out in plain English (and maybe Spanish these days…) what those fees are, your business could be opening the door for problems down the road with possible lawsuits. Think I’m joking? Just Google how many class action suits have been filed in recent years against businesses over just this. By the way, relying on 487 pages of a 2 point font called fine print isn’t going to help.

 

 Now, why am I being so aggressive about this stuff? Well for one thing, it’s been giving my industry a bad rap, and I’m frankly tired of it. A lazy 401k plan provider/advisor (NOT plan sponsor/business) are a dime a dozen, unfortunately. I can promise you that if you spent the time to dig around enough, you’d find that the most successful retirement plans out there (those with the highest participation levels and the best overall investment knowledge amongst employees) generally have the same things in common. The level of care, attention, communication, and education has been thorough and consistent over the years.

  

Think of it this way. How many times have you heard from your 401k plan provider/advisor since the market downturn in October? How many of your employees have reduced or stopped their contributions to the plan? (HUGE mistake, by the way.)

  

Please do a comprehensive review of your company’s 401k plan IMMEDIATELY and get these questions answered ASAP! If you’re not certain what your fees are or you think they might be something or another… it’s time for a full review. If you haven’t had a professional financial advisor speak to your employees about the current market and their 401k portfolio, it’s overdue.

 

 If you’re looking for more information on this, please look up the Pension Protection Act 2006 and ERISA Rule 404c for starters. Otherwise, you can contact me for a report and checklist detailing this vital information. It’s just far too important right now to put on the back-burner.

  

Next month we’re going to talk more about what a good 401k plan structure should look like to best protect the business and benefit the employees. These are terrific benefit programs, but they just need to be done the right way.

 

 Folks, this is simply Business 101. Liability bad. Information good. Arm yourself and your business!