The #1 Issue With 401(k) Plans – Nothing Else is Close

What is the #1 issue with the oversight of 401(k) plans? No question, it is APATHY on the part of plan sponsors. Nothing else is even in the ballpark.

In a typical plan, Joe, who’s been the guy providing the plan for years, stops in once or maybe twice a year, bypasses the HR Dept. and goes straight to the owner’s office or sits down with the CEO and CFO, shoots the bull for 30 minutes, talks for 30 minutes about how the plan is doing well and goes home.

His compensation – $20,000 – $60,000 or more for just that plan, just that one hour. Typically, there is no formal, documented process, no real oversight, no meeting minutes taken, no benchmarking of plan costs and no mention of the fact that his fee is 4X what it was 10 years ago for the same level of service and no improvement in the plan. In fact, Joe’s main business is insurance. He doesn’t even get regular continuing ed on retirement plans. Why? His clients never ask about it.

I called a plan last week that had the highest administrative cost of any plan its size in the whole area code. They were paying $200,000 to $300,000 per year more than average. And, while their participant count is up 2X over the last 10 years, the plan fees have gone up 800%, not just on investment management, on everything because it’s a one provider plan, like most are. They’re a sitting duck for a lawsuit or a DOL civil action.

The response of the CFO to that news? A big yawn and have a nice day.

Another plan I know with admin costs 2X what they should be has an 8-fund lineup underperforming relevant indexes by an average of 3%/year over the last 5 years. The doc in charge of the plan’s response? “We’ve had a strong relationship with our guy for 30 years. We’re not interested in talking to anyone.” No wonder their costs are too high.

Think they do required regular benchmarking? Think they know what their costs are? Think they have a sound, documented process for overseeing the plan and the vendor? No, no and no.

I could tell these stories all day long. Participants in both these plans are being harmed. In the second plan, participants are compounding their return 3% a year less than it should be. That’s a shortfall of potentially hundreds of thousands of dollars over a working lifetime for each plan participant. The real problem – their employer’s APATHY.

As a fiduciary, these men are failing miserably, much to the harm of the people relying on them. I’m not a fan of lawsuits, but these men deserve to be sued.

If you are a participant, insist that your plan demonstrate that it does regular benchmarking and takes the responsibilities of a fiduciary seriously. If they are open to it, call me. If they don’t, write the DOL or call a lawyer. Seriously. Don’t let a fiduciary that doesn’t care ruin your retirement and others.