Here in Charleston, SC when I speak with physicians regarding their 401(k) plans they are often in one of two camps. First, they tell me they review their plan every year, with their current plan provider. While this is great and should be done, to get a true review of the plan you should look to an outside advisor or plan facilitator to take an unbiased look at the plan. Why would your current provider want to show you more cost efficient and better structured options than the one they’re getting paid handsomely to provide you right now?
Second, plan providers “just don’t have time” to review their plan; with most not having reviewed their plan within the last 3 years. I get it- when running a practice there’s never enough time to do anything other than run said practice, but if you ask for help you can have this chore done for you- free of charge.
Yes, if you “don’t have time” to review your plan all you need to do is make a few phone calls to plan providers and they will do everything for you, just for a chance to win your business. While it might take someone with little knowledge of a 401(k) plan weeks or months to analyze- a professional can go through your plan, find out exactly what you’re actually paying, make sure your fund selection is up to par, evaluate your Third Party Administrator, and ensure your fidelity bond is sufficient in a matter of days.
Once the current plan is evaluated then a comparison is provided for the plan sponsor. This will likely include an evaluation of current plan costs vs. what may be achieved using alternative providers. This cost breakdown should include what participants are paying for the funds they use, the TPA expenses, and what the advisor is getting paid to provide plan advise, participant education, and investment selection and monitoring.
An analysis of current investment menu and the type of shares offered will typically be done. Often, I see a fund menu that doesn’t provide key asset classes that are required to construct a truly diversified portfolio within the 401(k) plan. Another common problem is the presence of mutual funds with high expense ratios that are just unnecessary (if you don’t get clean shares with no 12b-1 and third party service fees, please call me immediately). Finally, these plans often omit index funds altogether, leaving the plan sponsor vulnerable to IRS and DOL ERISA scrutiny.
So how often should you review your plan? At least every three to five years is necessary to abide by ERISA standards and avoid any regulatory headache. If you don’t have time to review the plan yourself, reach out to someone who knows the ins and outs of 401(k) plans and have them do it for you. Even if no better alternative is found, file away the proposal to use as a paper trail show that you’re fulfilling your fiduciary duty of providing the best plan option for your employees.