Choose your advisors carefully

With 401(k) plans replacing pension plans as a primary source for retirement income, providing your employees with a high quality 401(k) platform has never been more important. Technology has revolutionized the delivery of 401(k) plan and participant services. There really is no excuse anymore to settle for a lousy or expensive 401(k).

Perhaps, as a plan sponsor, a first question to ask is whether the individuals you employ or are considering to advise you are truly knowledgeable and qualified to be your advisor. Is who you are considering more salesperson, say an insurance agent or investment representative showing you products or is that person a true retirement plan specialist? How can you tell the difference?

Typically advisors and consultants either come from the investment industry or the third-party administration industry. One might have knowledge of investment options and the other about plan design issues but rarely would either person know about both of these aspects of a plan, at least to a level of expertise required - and then what about ERISA and fiduciary issues?

A recent survey in “Plan Advisor” magazine looked at advisors and satisfaction rates of these advisors when using the products from various service providers. One of the larger recordkeepers received glowing reports from these advisors. We recently ran across a plan utilizing this recordkeeper and discovered that the testing methods they employed were severely and unnecessarily restricting the amounts that highly compensated employees (HCE) were able to contribute to the plan. It’s not that they did the testing incorrectly – just incompletely. A very simple additional test would have allowed these HCE’s to contribute another $5,500 at minimum. Having no idea about this the employer was very happy with the service they are getting despite having three administrative people assigned to their account over a six month period. The advisor on the plan comes from an investment background and admittedly does not know much about plan design but knew enough to ask someone that did to have a look. The moral of this story is that the recordkeeper likely would never have brought this up and the advisor and employer didn’t know to ask resulting in a reduction in allowable contributions in the tens of thousands of dollars over time.

Anyone holding themselves out as a retirement plan specialist should be able to look at the paragraph above and tell you what the likely cause of the problem was and why the HCE’s would be able to make a larger contribution without changing anything about the plan. In this case the advisor didn’t know what he didn’t know. The employer didn’t know what they didn’t know so they just accepted the results.

Bundled products from companies that serve thousands of clients may well be appropriate for your company but in that environment don’t you want an advisor that knows? Maybe if the advisor was able to articulate the problems the employer might encounter with bundled providers the employer might have chosen a different path. A knowledgeable advisor adds value when helping you make informed decisions or in a case like this providing oversight over a service provider where your plan is only one of thousands and maybe doesn’t rank very high on their list of priorities.

We can work with any one of dozens of plan products including our own open architecture platform which we began offering in 1994. Our experience with open architecture exposed us to employee census and testing issues, plan design elements, recordkeeping and trust issues as well as investment selection and monitoring. Cost efficiency and containment and fiduciary protection maximization were and still are key elements of the services we provide.

Educators will tell you that it takes at least 10,000 hours of exposure to something to become proficient in that something. How many hours then does it take for an advisor to become proficient in plan design, investment selection and monitoring, fiduciary care, ERISA issues and plan service delivery platforms like open architecture? How many investment advisors even endeavor to become versed in plan design and administration or plan administrators in investment and fiduciary issues? Depth of experience is one of the reasons why we believe we are different from most in our field and uniquely qualified to partner with you to make your 401(k) plan succeed.

Isn’t it time for you to talk to people that specialize in retirement plans? If so let’s start a dialog. We can be of assistance as advisor to your plan using existing investment and administrative service providers or we can help with a plan evaluation and service providers search.

Kurt Millikin
e-mail Kurt
Direct telephone:(206) 267-2315



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