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February 22, 2022 In Fiduciary, Investments

Back to the Basics – Pay Special Attention to the Fund Menu.

At some point, a certain amount of apathy and blasé comes to those who watch legal proceedings relevant to retirement plans. Another excessive fee lawsuit involving overpriced funds. More performance lagging investments. Failure to negotiate rising recordkeeping costs. However, a unanimous, swift, and pointed proclamation from the Supreme Court merits attention. And the most recent treatise demands that plan sponsors and their advisors go back to the basics with respect to retirement plan fund menus.In the matter of Hughes v. Northwestern University, SCOTUS rejected the idea that a fiduciary can escape the legal challenge of having imprudent investment options in the plan, as long as there are other, prudent options. Rather, the Court reinforced the notion that plan fiduciaries must monitor “all” plan investments and remove “any” imprudent ones. Furthermore, fiduciaries must consider all the investments “at regular intervals” to ensure that they are prudent. Is this being done? As a plan sponsor or a retirement plan advisor, are you regularly reviewing your plan’s fund menu? With all the focus on “financial wellness” and “fiduciary training,” let’s not forget the basics: Fiduciaries must actively review plan investment options, ideally against stated criteria, at regular intervals. Equally important is documentation of

November 22, 2021 In 401(k), 403(b), Asset Based Fees, Fees, Fiduciary

Revenue sharing is on the decline, as it should be.

The use of revenue sharing in retirement plans is on the decline, and this is a good thing. Plan sponsor surveys by both Callan and the Plan Sponsor Council of America highlight the decline in use of revenue sharing from over 21% of plans to about 15% in 2019. However, revenue sharing still runs rampant in smaller 401(k)s, and among 403(b) plans. Revenue sharing is an additional cost, tacked onto the expense ratio of a mutual fund or insurance product to pay for (typically) either the advisor’s services (aka 12(b)(1)s) and/or recordkeeping services (sub TAs). It ranges between 5 and 75 basis points and basically represents indirect and sub-surface payments from one service provider to another. The model is fraught with problems. For example: Uneven revenue sharing among different funds in a given plan means that some participants are paying more (in the form of a higher expense ratio) than others for the same service. Poorly disclosed revenue sharing leaves participants and many plan sponsors in the dark about what they’re paying. Indeed as many as 30% of plan sponsors admitted to not knowing if revenue share agreements were in force. Given all the recent fee litigation, sponsors should want to know, and advisors should

November 17, 2014 In Investments, Plan Design

401(k) Investment Menu; Less is More

In the old days, some plan sponsors treated 401k investment menus like a restaurant menu. If somebody (influential) wanted a fund in the lineup it was added. The result of this in many plans were investment menus with too many funds, overlapping funds and dominated funds. Lineups like that are confusing to participants and result in poor(er) asset allocation.