401(k) plan sponsors face increased risks


If you asked most businesses that sponsor a 401(k) plan whether they are obeying their fiduciary duties, they would likely respond in the affirmative. They have a brokerage firm, bank or insurance company that provides a list of options to invest in that includes bonds, hybrid options, stock-based investments, as well as a stable value or guaranteed account that pays a stated rate of interest.

Typically, plan sponsors will meet with their investment advisor a couple of times a year to go over the list of offerings and employees select from the options. So the plan sponsor thinks they are honoring their responsibilities, while they may not be.

More from Investor Toolkit:
Health care an ever bigger part of retirement planning
Don’t get emotional about your investments
How to plan — financially — for divorce

For each plan sponsor, one or more individuals are named fiduciaries and have a fiduciary duty to the participants of the plan (with the exception of simple individual retirement accounts, IRAs or simplified employee pension plans). Examples of plan fiduciaries include the trustee, the advisor of investments, all people involved in administration of the plan and those who select the committee officials.

The Department of Labor says that fiduciaries are people who manage an employee benefit and assets. Employers hire outside professionals, third-party service providers or assign an internal committee. Even if these services are hired to manage the plan, the employer still technically has fiduciary responsibilities.

Consider a company with a handful of employees that offers a 401(k) plan with $2 million in assets placed in different mutual funds. The third-party administrator bills them $2,000 annually, which the employer thinks is a good deal. But the administrator will also be getting 25 basis points of compensation from the mutual fund company, which equals $5,000, so the total cost is $7,000 in the end.

Source link

Products You May Like

Articles You May Like

SpaceX testing its own satellite broadband internet network
Rates are ‘extreme.’ Expect a rally in bonds, utilities, says trader
Bank of England Governor Mark Carney
Trump wants bump stocks banned for guns
Coca-Cola earnings Q4 2017 beat expectations

Leave a Reply

Your email address will not be published. Required fields are marked *