The Simplified 401K Plan Solution

by | Sep 25, 2018 | 401k & Retirement Planning, Advice that Matters

The owners and plan trustees wanted to increase plan participation rates, especially with the younger, lower earning employees who make up most of the workforce. Due to the nature of the business (120 employees in multiple locations) the broker from a large institution wouldn’t do periodic onsite enrollments. The trustees were also concerned with plan fees because they weren’t clearly stated in their agreements and they weren’t sure of the plan’s true overall cost.

First, there were two other competitors, I helped the trustees understand the differences in business and compensation models so they could make a truly transparent comparison. We reviewed each bid in black and white, plain English terms. One bid was competitive, one was not. This opened the door for me to further differentiate in three key areas.

I) Clarify to Simplify

401k Plans are broadly categorized as “bundled” and “unbundled.” Bundled plans may combine the record keeper, TPA, and mutual fund functions under one entity; advisers may also be part of the bundle. They had a standalone TPA, standalone broker, the recordkeeper and fund provider were bundled. Understanding how each gets paid is often challenging. After reviewing their current agreements, plan documents, and fund lineup there were duplications and excesses. We showed them how to streamline record keeping and administration to be more cost-effective and provide better investment choices.

We suggested a bundled provider that performs the TPA, record keeping, and fund platform functions and is paid from plan funds; and eliminated the cash cost they had been paying. Unlike their existing plan, our provider uses an “open architecture” of over 14,000 funds. No provider has economic incentive to use any specific fund. In contrast, their fund lineup had a large portion of “revenue sharing” funds. That is, fund companies pay money to plan providers to use their funds. This conflict of interest is seldom understood by owners/trustees. Typically, funds are over-priced, and the owner is at risk for their selection. In contrast, we take on the investment liability in a clear, unambiguous written agreement.

II) Clear Disclosure of Conflicts & Incentives

The incentives to sell proprietary funds that are more profitable for the providers at the expense of the company’s participants presents conflict of interest. Selling brokers have frequently been known to pitch these plans as “no cost” to the company. A sort of true yet misleading statement. Expenses are paid from the mutual funds which means they are extracted from participant returns. That’s not illegal, but it obscures the true cost of the plan. Under ERISA, the owner and trustees have a fiduciary responsibility (and liability) to understand the plan’s true cost to ensure plan participants get a reasonable deal. It’s hard to do if the information is buried in fine print legalese.

In the small plan market, most owners are unaware of ERISA’s complex rules and their duties until there is trouble as numerous recent court cases attest. Despite increased fee awareness, a Pew Charitable Trust survey of over 900 small businesses showed that 65% of small plan sponsors said they were not familiar with their plan’s all-in fees. Why? For starters, they are very busy running a business! The intent is to offer employees a benefit. Many owners are heavily invested in the plan. It’s not likely they are purposely being negligent. The industry’s lack of transparency and clear disclosure has been the primary culprit.

Neither my firm, nor providers we use accept revenue sharing “kickbacks.” If a fund in the lineup pays revenue sharing it gets rebated back to the plan. This is clearly stated in our 408 (b) 2 disclosure document. Their fund lineup consisted of many overpriced, underperforming “revenue sharing” funds. Since we take on investment liability for the Plan, we eliminated these excess fee laggards with a stronger fund lineup and were able to show them substantial all-in savings for the plan with no direct out of pocket costs to the company. That’s win-win for the employees and the company.

III) Solutions Tailored to Plan Objectives

To strengthen participation, we added an auto-enrollment feature. And importantly, we showed up every 6 months for enrollments to educate employees how to use the benefit! We designed much of the educational materials to speak directly to the younger employees. Digital tools and online access are all well and good. Face to face communication is often critical to help people understand saving and investment principles that can help them build stronger, more secure outcomes. Of equal importance is to help them monitor and gauge progress so adjustments can be made if needed. 

What Changes Were Made? 

Our advice driven model focused on the trustees concerns. We were able to reduce the Plan’s all-in cost by nearly 60% and quantify that clearly for the trustees. Beyond eliminating costly inefficiencies and excesses, our educational efforts have resulted in participation rates rising consistently from 59% at program inception to 75%. Targeting 80-85%.

John Scott, The Pew Charitable Trust, May 7, 2018


Jerry Matecun helps business owners to understand and manage retirement plan risks and responsibilities, as well as help participants understand saving, investment, and distribution strategies vital to retirement readiness. For a no cost, confidential conversation regarding your retirement plan call or email Jerry at 949-273-4200, 616-499-2000, or

PLEASE NOTE: Nothing herein or elsewhere on this site constitutes investment, legal, or tax advice. For details please see Disclosure.

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