As participants begin to delve into the new breakdown of their retirement plans, what can you do to reduce the backlash and support greater participant success?
As a rule of thumb, over-communicating is better than the alternative. Employees will appreciate you, and better yet, many will be more willing than ever to meet with you to discuss their personal financial planning. In the end, you will get paid more for your actions, not less!
Here are five of the best strategies for coming out on top in a post-fee disclosure universe:
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1. Get out in front of the noise
There is a lot of press swirling about, suggesting that employees are paying too much for their 401(k) plan or that the entire 401(k) plan system is broken. While you may think that's nonsense (and so do I, as 401(k) plan fees have been dropping 25-50 percent across the country), you need to get out to your 401(k) employers and make them all aware of the pending DOL participant fee disclosure. Let employers know what it means and what they may expect from their employees reactions. Let them know how their 401(k) recordkeeper plans to communicate these fees and in what format.
2. RFP
If you haven't put your 401(k) plans out to bid in the last three years, you best do so now. 401(k) plan fees and expenses have been dropping drastically. Depending on your plan's size, you may be able to save the employer and employees as much as a quarter, or even a half (if not more), in expenses! Make sure you do this and not your competition.
3. Add Low Cost Index /ETF Funds
If your current plans do not offer lower cost index funds in each asset category, add them immediately. In large fee disclosure litigation cases, the courts have ruled in favor of the plaintiffs (plan sponsor fiduciaries), especially when a 401(k) plan offered both active (higher cost) and passive (lower cost) fund options to all employees. Translation: It's tough to argue when a plan offers a wide range of investment choices.
4. Talk to employees
Tell the plan sponsor employer it is critical that you meet with employees, both in groups and one-on-one, to make them aware of the fee disclosure and its impact on their retirement savings.
5. Update your service agreement and fee disclosure statements
As an advisor to a 401(k) plan, you need to communicate the following:
- the services you provide,
- the fees you will receive for providing those services, both hard and soft dollar fees,
- whether you will be a fiduciary to the plan, and
- if you have any conflicts of interest.
Now is the time to update and/ or create a service agreement.
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