July 5th, 2016
2016 Retirement Plan Environment at a Glance
Medieval Europe’s nobility protected themselves from invaders with thick multistory walls around their houses, making their dwellings look more like military fortresses than houses for families. The more money people had, the higher the walls, deeper the moats and thicker the gates. Fast forward a couple hundred years, and the European landscape completely changed. Walls were no longer being built around houses, no moats, no drawbridges. Why? One thing, gunpowder had changed the rules. Since gunpowder destroyed the protection walls provided, houses spread out, lost their walls, and became more like homes we would recognize today and less like military compounds.
In the employer-based retirement plan world, walls are coming down all over the industry. We see it happening with regulatory authorities, courts and investment advisors. The Department of Labor published a final ruling in April 2016 expanding its definition of “fiduciary” for advisory activity involving retirement plans subject to ERISA and IRAs. The ruling requires plan sponsors and administrators to act in the best interest of plan participants or IRA holders. The new so-called “Fiduciary Rule” will certainly tear down a wall that some insurance companies and other financial representatives had built between themselves and their clients. In addition, federal courts have seen a recent wave of lawsuits brought by retirement plan participants regarding breaches in fiduciary responsibility by plan sponsors and administrators. The allegations brought forward by these cases center on plan sponsors’ lack of accountability from investment advisors and third party administrators. As the allegations go, this lack of accountability or knowledge has allowed some company-sponsored retirement plans to have expensive funds, high fees, poor performance and bad advice. The courts may very well tear down a wall between plan sponsors and their obligation to provide proper fiduciary responsibility.
What are you as a plan sponsor to make of all this?
The Fiduciary Rule
Let us start with the Fiduciary Rule issued by the Department of Labor and its impact on 401k Complete plans. Warren Averett Asset Management is a Registered Investment Advisor that acts as a 3(38) Fiduciary over our clients’ 401(k) plan investments. This means all of the responsibility of investment decisions over our clients’ 401(k) plans rests with Warren Averett Asset Management. We are required to act in the best interest of our clients. The Fiduciary Rule has no impact on Warren Averett Asset Management or our current investment options because we were already serving our clients in the capacity required by this new ruling.
Plan Sponsor Lawsuits
Some of the largest complaints made by participants in legal cases brought against plan sponsors surround high-cost retail investment options and perceived exorbitant plan costs. Currently, 401k Complete uses high quality, low-cost institutional managers. We recommend investments always with an eye on cost and performance. Each year during our annual plan reviews, we benchmark the total costs of our plans against a large population of similar plans and provide that information to our clients. In addition, we receive no revenue sharing from mutual fund managers. Our fees are considered a “level fee” arrangement. The fee is based on a percentage of the assets and does not vary with any particular recommended investment option, and it is paid independently by the company or the retirement plan participants. This fee structure allows us to select the mutual funds we believe will serve plan participants best (not mutual funds that would pay us the most commission).
401k Complete Covers It
In summary, a great deal of change is happening in the retirement plan sphere, and you should be sure that your plan is well positioned. Does your current advisor offer low-cost, high quality managers, benchmark fees, and have the best interest of your 401(k) plan participants in mind? 401k Complete provides all of this and more with Warren Averett Asset Management serving as the 3(38) Fiduciary Registered Investment Advisor.