by: Roxanne Fleszar
from: 401kwire.com
March 24, 1999

Famed rock star Mick Jagger may have time on his side, but a recent study shows that many plan sponsors are grasping for more hours in the day. Not surprisingly, the 1998 BARRA RogersCasey/IOMA Annual Defined Contribution Survey of 475 large plan sponsors indicates that plan sponsors are lacking the necessary time and resources to adequately create and oversee an effective qualified retirement plan. The following percentages of plan sponsors responded that they do not have sufficient time and resources to properly fulfill their responsibilities in these areas:

• 47% are unable to monitor plan costs to ensure they are reasonable based on services received. Assuming you currently offer a qualified retirement plan, complete a cost disclosure worksheet. If your plan service provider or consultant cannot provide one, a good sample can be downloaded free from the Profit Sharing/401(k) Council of America’s web site at www.psca.org. Completing this worksheet may initially require several hours of your time, although your plan provider or consultant can be called on to complete much of the information.

Once completed, this worksheet should be updated and reviewed annually to determine if rising fees are in line with services rendered. It should also be reviewed periodically against industry benchmarks to insure the plan is not incurring unnecessarily high costs. The HR Investment Consultant’s 401(k) Provider Directory Averages Book is a good source for this information. Additionally, keeping track of plan costs will make it easier to disclose costs to participants, and to the Department of Labor (DOL) should your plan be audited.

• 23% are not offering satisfactory information to effectively educate plan participants. Educating the masses is easier than it sounds. As mentioned above, the simple addition of a cost disclosure worksheet to your plan records will readily supply plan expense information to inquiring minds. Further, many tasks can be appointed to an assistant, such as maintaining current prospectus’ for fund options, the scheduling of financial seminars, and/or the delivery of financial newsletters and performance.

Plan sponsors may also benefit from recent changes to DOL regulations, which now allow employers to offer participants personalized financial advice from an outside advisor. This recent change signals a win/win situation for employees craving further direction, and for employers looking to reduce their potential for liability.

• 14% are not regularly monitoring investment options. When you get down to bare facts, the point of a retirement plan is to make money. This said, monitoring investment options becomes one of the most important responsibilities of a plan sponsor. Effective investment monitoring should begin by comparing investment performance against relative benchmarks at least quarterly. Additionally, plan sponsors should review plan holdings at least annually against predetermined criteria for investment selection and retention as set forth in the Investment Policy Statement.

• 5% of plan sponsors say that time constraints limit their ability to choose an adequate plan provider. Plan sponsors who are instituting a plan or considering changing plan providers definitely face a daunting task. To reduce time spent comparing providers, request proposals in your own format, based on the services desired for your plan. To save time poring through written materials to find bottom-line expenses, send each prospective provider a blank copy of your cost disclosure worksheet to complete. Costs can then be lined up in spreadsheet format for easier comparison.

Remember, however, that the least expensive provider is not always the best choice. Aside from confirming that you will receive all the services desired for the cost provided, be sure to compare each provider’s net investment performance. Preferably, investment performance should be reviewed net of all fees for a rolling period of at least five years, and compared against the appropriate benchmarks for those same time periods. Although future performance cannot be guaranteed, you certainly do not want to pay above average fees to someone who consistently offers mediocre returns.

Of course, plan sponsors who absolutely cannot find the time to conduct an adequate provider search should hire this task out to an independent consultant. Acting on your behalf, a financial advisor will review various proposals representing the plan’s requirements, and present you with at least the top three for your final decision. Hopefully, this due diligence will leave you with a satisfactory arrangement for years to come.

It is inarguable that the responsibilities of a plan sponsor can easily nibble away a significant chunk of your time. Yet with some up front work, allocation of duties, and regular reviews, you can fulfill the best interests of both employer and employees.