As a financial advisor, you know your client is already looking out for their employees and the good of their company when they tell you they want to offer a 401(k). That’s mainly because it attracts and keeps talented people as well as providing some tax benefits for the plan sponsor, your client.
You likely also know that, by offering a plan, the sponsor takes on very important duties that focus on prioritizing the best interests of the plan participants and beneficiaries. Knowing and understanding these duties are key to creating the best possible 401(k).
At FiduciaryShield, all we do is retirement plans, so we are well-equipped to help you and your client make the most of creating a 401(k) plan.
With that in mind, let’s go over the three most important duties of a plan sponsor.
- To avoid any potential, existing, or perceived conflicts of interest
- To document the process by which service providers are chosen
- To ensure fees are reasonable
While all three are vitally important, it is this last duty — to protect participants from onerous fees — that any Department of Labor investigation, current employee or former employee will scrutinize most closely.
In this article, we will go over the two other duties and spend a bit more time on fees farther down.
Conflicts of interest are easy to understand — the person making choices stands to gain from the choice — but sometimes they are hard to see. That’s why it is important to think through and document potential conflicts of interest ahead of creating a plan.
For instance, an insurance company that may serve as a recordkeeper for a plan may also have proprietary investments on the menu. While that might seem acceptable at face value, there must be proper disclosure. Can the employer evaluate the fees? Are they reasonable?
Would recordkeeping charges change if the menu did not include offerings from the insurance company? If a plan sponsor opts for the cheaper recordkeeping fees while adulterating the investment menu, that’s not looking out for the interests of plan participants.
So it’s important to look carefully at all decisions around a plan to ensure there are no conflicts of interest.
On the second point, if the plan sponsor opts to outsource administrative duties to a 3(16) Administrator, the administrative fiduciary will handle the day-to-day, such as approving distributions and determining employee eligibility to participate in the plan.
And while that administrator will meet some compliance responsibilities, the setup still leaves the plan sponsor on the hook for doing their due diligence on a service provider.
Then there are the fees that we spoke of previously. Ensuring the fees are reasonable is important for the participant, so it should be important to the plan sponsor. That means properly documenting them to show that fees have fallen when assets have risen, among other things. This process is useful for benchmarking and is a profoundly important part of the documentation process.
You can spend a very significant amount of time making sure you and your client, the plan sponsor, are doing everything required to be compliant.
Or you can talk to us.
The bottom line is that every decision should put the participants’ best interest first. That’s at the center of FiduciaryShield’s service.
We will not only administer the day-to-day of the plan, but we also review where any conflicts of interest could exist. Our prudent process properly documents for you why the service providers were chosen and the fees paid to ensure they are reasonable.
In other words, you don’t get piecemeal, limited compliance with us. FiduciaryShield provides the full compliance package.
While a plan sponsor can never fully outsource their fiduciary responsibilities, working with FiduciaryShield can reduce most of it. We design a fully compliant plan and work with you and your client to ensure it stays that way and that it creates as little work for either of you as possible while providing the greatest possible protection from liability.
It’s time for the better 401(k).
Call us at (941) 761-401(k) or email us at info@FS401k.com to speak with a plan administrator and learn how FiduciaryShield can help you and your clients.