The Biggest Problem With Your 401K

You may have seen law firms advertising to people that have lost money in “any investment” recently. These firms love complaints against 401(k), SEP, SIMPLE, and other retirement plans – one client can quickly become a lot of clients. Many employers think they are safe from this liability because a big brokerage company or name brand bank put the plan in place. This is not the case.

In the last year hundreds of law suits have been filed against the likes of Walmart, Dell, International Paper, Lockheed Martin, etc. And while the provider brokerage firms vary in these cases, the plans all have one thing in common:

Employees receive a list of funds with performance history and virtually no other information or assistance in making investment elections. Sound familiar? If so, this may mean your plan is not fulfilling its ERISA requirement to educate your employees about the plan. And this could be the biggest problem with your 401(k) or other retirement plan, especially if participants are asking other employees for advice, if there aren’t even larger issues looming.

What was intended to be a competitive benefit can turn into a liability nightmare, especially in a down market. The truth is very few plans pass Department of Labor scrutiny when audit time comes, and in most cases the employer is personally responsible for losses incurred in a plan where stringent requirements are not met and maintained. And while employer liability is a big issue, the greater problem lies in the confusion employees face when trying to fund retirement on their own.

The majority of plans are laden with fees, some apparent, some not. More often than not they lack what is necessary to build a diversified portfolio. In some cases, it is difficult for participants to get specific advice. The good news is that you can better protect yourself as a plan sponsor simply by understanding what is required of you as a fiduciary to the plan.

If this sounds overly complex and unfair, that’s because it is. But, while the investment world is vast in its complexity, if you know the right things, you don’t need to know everything. The truth is if you know what you need to pay attention to in a plan, it’s not that hard to provide a solid, low cost, user-friendly plan to your employees, and cover your own assets at the same time.

The first thing you need to know is under ERISA you are expected to act as an investment expert, so if you don’t know what is in your plan or how it works, now is a great time to find out! Join us on April 23th at noon for a free lunch at KeySource Bank to find out if you know what you need to as a plan sponsor.

For question or comments you can always email us at becker@wiserfinancial.com