by Depending on the size of your plan, the 401(k) can be complex because of the many moving parts. Just as a conductor’s role is to make sure the musicians are performing the notes with passion and faithfully executing the vision of the composer, the right financial advisor can help the plan sponsor review your existing plan, and once implemented make sure that all the players are faithfully executing your score.
I recently completed a review of a plan for a friend, and 7 red flags were discovered.
1- The plan contained 100 participants with account balance of zero. That translates into unnecessary additional expenses.
2- The plan was perpetually being filed on the drop dead date of October 15th. The question to ask- who is holding this up and why?
3-The total administrative expenses was close to 3 times the national average. Why?
4- The fees were not represented clearly. It didn’t correspond with schedule A and H of the tax documents. Why?
5- This plan used a bundled Third Party Administrator (TPA). That meant that the Record Keeper, (provider of investment platform) was also responsible for the compliance. While this arrangement can work, in this case it didn’t. No one was minding the show.
6- The plan used wrong codes on the tax filing. The plan was coded as a profit sharing only plan. This wasn’t accurate because there was salary deferral. Should the accountant have caught this?
7- The plan was created in 1994. Fees have been significantly reduced in the last 20 years. Older plans ought to be re-visited often to make sure that the fees are still competitive and the design is still consistent with the needs of the plan sponsor.
In the end, the plan sponsor has fiduciary responsibilities, which means the company is ultimately responsible for any compliance issues.
Hiring the right financial advisor who can routinely review the various components on the sponsor’s behalf, could be a “sound” financial decision to help you through the sharps and flats of your 401(k).