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Monday, February 23, 2015

The Surefire Way to Avoid Cost-Related 401k Lawsuits AND Have a Successful Plan

If you have actively managed funds in your 401k plan today, it's a safe bet your advisor is not providingAvoid_401k_Lawsuits any real guidance on plan cost.  But even without his help, you can easily Google the topic of actively-managed fund cost and performance vs. index (passively-managed) fund cost and performance.  What you'll find is clear proof that index funds, at a fraction of the cost, outperform active funds 80+% of the time.  Any layman can read and comprehend this research without any "expert" assistance.  Talk about transparency!

As we look at the common factors in nearly all 401k lawsuits, no plan sponsor would have lost his case, or been forced to settle, if his plan contained all, or mostly index funds!   Such a plan would have acted upon the overwhelming evidence mentioned above.  It would have minimized the cost to participants while giving them the greatest odds for making a solid return on their savings.  It would have established the plan sponsor as not only a responsible fiduciary but a champion of his participants as well.  Case dismissed?  Way better than that: the two most prevalent bases for every suit we've reviewed are eliminated entirely!

If you happen to be a plan sponsor who has loftier goals for your plan than avoiding penalties and staying out of court—like having every employee participating, earning the maximum match, savings as much as he can, investing in a way that fits his risk tolerance and gaining as much retirement security as possible, you can take an index fund strategy to a whole new level.  If your company had a 401k plan with pre-built portfolios made up entirely of low-cost index funds, your participants would have no reason to sue you at all.  If you can do that, AND help your participants truly maximize their retirement savings, why would you, as a fiduciary, not pursue that course?  The only reason not to is if you have no interest in a plan that is truly successful for your company and your participants.  In that case, the best course may be to resign your fiduciary role!

What happens when all the elements of a truly successful 401k plan are implemented?  Check out our case study and see for yourself!


Posted by 401K Revolt at 11:11 AM
Thursday, February 05, 2015

401k Lawsuits on the Rise: The Harbinger of Successful 401k Plans?

401k-related lawsuits are everywhere lately, and the number is trending up!  What’s the near omnipresent401k_Lawsuits_on_the_Rise issue in all these suits?  High cost.  Most have been settled out of court to avoid the bad publicity because the stakes are so high.  The Merrill's, Morgan's, Fidelity's and John Hancock's of the world are siphoning  millions and millions of fee dollars from participant accounts—all at risk if the general public should finally learn the truth about the magnitude of these largely hidden costs.  For plan sponsors, the financial hit may be proportionately less; but for them, the complete loss of employee credibility may be an even greater cost. 

The reason ERISA exists is to protect investors from abuse, and it clearly lays out the responsibility of a plan fiduciary.  Many plan sponsors have been led to believe their responsibility can be delegated or transferred to outside entities.  If you take the time to read over the body of cases, you might be surprised to see how quickly and effectively all the so-called co-fiduciaries shirk any responsibility!

 More recent regulations on fee disclosure (408b primarily) take more precise aim on the fees in 401k plans (some hidden, some in plain sight).  Consumer advocates hoped these required disclosures would result in the sudden recognition that plan participants are being over-charged.  No such recognition has occurred.  Not because plan sponsors and participants are oblivious, but because the "providers" continue to obfuscate cost to preserve their own existence.  And their existence is truly at stake, so their effort is understandably obsessive. 

The 401k-plan world is dominated by actively-managed fund families and the commissioned salesmen who sell them.  They defend their service in spite of average participation levels of about 60% and persistently poor (if not disastrous) investment decisions by participants.  They produce "benchmark" studies that compare every over-priced plan to a universe of over-priced plans, and then declare your costs to be reasonable!  So far, it seems to be working well for them.  The movement away from actively managed funds and high add-on fees is barely noticeable.

Amazingly, the very plan aspects being challenged, litigated and settled in favor of participants in these lawsuits are present in virtually every plan we see!  Many plans are much worse—they’re just lucky enough to remain unchallenged.

Stay tuned for our next blog about the surefire way to AVOID cost-related 401k lawsuits!

And in the meantime, check out our "Essential 401k Whitepaper" to get the scoop on why most 401k plans are not successful 401k plans!


Posted by 401K Revolt at 11:44 AM