Is Your Company's 401(k) Plan as Good as It Could Be?
In light of a recent SCOTUS ruling, this is a good time to double-check your company's 401k plan.
How often do plan sponsors check up on 401(k)s? Not as often as they should, perhaps. A recent legal development seems to call for greater supervision of these plans from employers - a degree of supervision many have not routinely provided.
Do you have high-quality investment choices in your plan?
While larger plan sponsors have more "pull" with plan providers, this does not relegate a small company sponsoring a 401(k) to a substandard investment selection. Employees are smart and will ask questions sooner or later.
Are your plan's investment fees reasonable?
Employees can deduce this without checking up on the Form 5500 you file - there are websites that offer some general information as to what is and what is not acceptable. Most retirement savers read up on this with time, and most know (or will know) that a plan with administrative fees pushing 1% is less than ideal.
Are you using institutional share classes in your 401(k)?
This was the key issue brought to light by the miffed plan participants in the Tibble v. Edison International case. When Edison International added a collection of mutual funds to its 401(k) plan in 1999, it chose to offer plan participants retail shares in six of those funds rather than institutional shares.
Edison International saved about $8 million in administrative expenses with that move - but there was a cost for that savings, and it was passed on to plan participants. They ended up paying higher fees on those investments, for retail shares have markedly higher fees than institutional shares. It is not unusual for the difference to exceed a tenth of a percent. This may not seem like much to quibble about in the present, but the impact on retirement savings over time can be significant.
When was the last time you reviewed your 401(k) fund selection & share class?
Was it a few years ago? Has it been longer than that? Why not review this today? It is part of your fiduciary duty to your employees to do so.
You certainly do not want a lawsuit brought against your company charging that you neglected a core responsibility of sponsoring a 401(k) plan. The Supreme Court decision on Tibble v. Edison International may inspire similar legal action from disgruntled plan participants. Do your best to avoid it - call in a financial professional to help you review your plan's investment offering and investment fees.
This post was contributed by Aquiles Larrea Jr of Larrea Wealth Management.
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