It’s no secret that the use of proprietary funds has been on a steady decline for years. As a result, the largest providers (mutual fund and insurance companies) are scrambling for new sources of revenue, including demanding shelf space (or the vaguely worded ‘infrastructure’) payments from fund companies and additional fees to plan sponsors and participants. Enter Big Data. The dominant providers in the 401(k) business (mutual fund and insurance companies) are mining participant data to reveal opportunities for cross-selling other financial products and services. While not a concern to Northwest Plan Services (NWPS), as we are not an asset gatherer and have nothing to sell to participants, this last effort (cross selling) is being examined in a new and significant light. Enter tort terror Jerome Schlichter, the notable protector of participant costs and now apparently, participant data. In the recent Vanderbilt University case, Schlichter and his clients, the participants of the University’s 403(b) plan, claim the University allowed excessive fees to permeate their plan. Plaintiffs then filed an amended complaint accusing the University of failing to protect plan data by allowing their service providers (at the time Fidelity, TIAA and 2 others) to market products and services to plan participants. Vanderbilt recently settled the
The next time you’re speaking with a 401(k) service provider, ask them how that fund (any of the funds) happened to make it onto their platform. Is it because that fund has superior investment performance? Is it because the platform provider or insurance company’s well-heeled cadre of analysts deemed that fund to be investment worthy? While we’re sure (well
The Internal Revenue Service allows non-elective 401(k) company contributions for employees paying-off student loans.
Many 401(k) plans are moving away from revenue sharing as sponsors and advisors cite the need for transparency and simplicity. So called ‘clean shares’ have no revenue sharing whatsoever in them and make no payments to recordkeepers or advisors. This is the wave of the future for both large and small plans using straight mutual funds, ETFs or CITs. Unfortunately, the same cannot be said for unbundled offerings using an insurance company platform and a local Third Party Administrator (TPA). Very often the insurance companies have special arrangements with TPAs whereby revenue is shared (and hopefully disclosed). Many (but not all) TPAs will offset their fees dollar for dollar with any revenue sharing. However, the dollar amount of these payments to the TPA can vary greatly from one insurance company to another depending on the volume of business that TPA has with that carrier. A TPA may receive 5 basis points from one insurance company for a given plan, while receiving 10 basis points from another insurance company for the very same plan. Even if the TPA offsets their fees with this revenue sharing, there may be more or less revenue available depending on the platform and the TPA. To be fair, many
A defined benefit (DB) or cash balance (CB) plan is more than just an employee benefit. Properly structured, a DB or CB plan can be an elegant tool to help manage cash flow, maximize profitability, and super charge the retirement accounts of key employees and business owners. For many advisors and indeed even for most plan sponsors, the actuarial services for a DB or CB plan remain a mystery, in a black box somewhere. It appears that actuarial service providers have taken their eye off the ball for all but the largest of clients. Often, the only time a client hears from their service provider is when the annual funding notice comes detailing the amount that must be contributed to the plan. That’s not the way Northwest Plan Service (NWPS) operates. We open the black box to explain how the calculations are constructed and how to use the plan to meet business objectives. With the client’s long term goals in mind, NWPS can develop a multi-year funding strategy that best meets the goals for cash flow, balance sheet considerations, maximizing tax-deferrals and minimizing PBGC premiums. We carefully monitor the plan and the rate of accrual for benefits. We’ll then provide a quarterly scorecard
At the recent NAPA industry conference, NWPS helped sponsor the Nashville 4.01k Race for Financial Fitness™. This race was locally sponsored by Avondale Partners, a perennial PLANADVISER Top 100 Retirement Plan Adviser (and NWPS partner) and proceeds benefited Junior Achievement of Middle Tennessee. The concept of the 4.01k Race for Financial Fitness™ was launched by Jason Chepnik and his Smarter Tomorrow Foundation™ in 2015. The Smarter Tomorrow Foundation™ is on a mission to give every kid from every community a fair shot at a strong financial future. By spearheading the 4.01K Race for Financial Fitness™ and other initiatives that promote financial education for the next generation, the foundation will empower kids across the nation to take charge of their finances and their life. Since 2015 more than $250,000 has been donated to financial literacy programs for children. We were delighted to participate in this worthy cause, even to the point of running through a deluge of rain. Pictured above (left to right) Jordan Sibler, Avondale Partners; Steve Glasgow, Avondale Partners, Tom O’Brien; NWPS and Erich von Bereghy; NWPS. Thanks to Jason Chepnik for founding this worthy cause and Avondale Partners for hosting and sponsoring in Nashville.
The practice of using additional revenue embedded in a fund’s expense ratio to pay record keeping fees is on the decline.