THE STATE OF THE 401(k) PLAN MARKET
There are approximately 533,000 401(k) plans in the U.S. and 90% of them have under 100 participants. The annual cost of these plans is substantially higher than larger plans. Sponsors and participants of these plans are most often being unfairly penalized by their financial services providers, who have demonstrated they can be very predatory when it comes to small 401(k) plans (particularly in terms of hidden fees and conflicts of interest which are built into the investment line up). While the plan is being sold “at no cost to the company” many providers are happy to create the impression that they are ‘trusted advisors” whose advice and investment selection is genuine.
We have found that most sponsors are unaware they have been sold a product as opposed to a professionally designed fiduciary plan. In actuality the sponsor holds all the fiduciary liability and the providers often have no fiduciary duty whatsoever.
The fiduciary duty is the highest duty established by law.
It is a legal pledge that requires the fiduciary to act in the best interest of plan participants.
Business Owners and Board Members are deemed to be fiduciaries by the Department of Labor since they select those that have discretion over 401(k) plan assets. Hence, without the proper protections they are legally responsible and can be personally liable for plan losses.
Working with a qualified fiduciary consultant allows you to receive “statutory relief” by sharing liability for the plan and its investments with your advisors. Therefore, it is both an economic and fiduciary necessity that sponsors have their plans independently benchmarked.
“You want to choose funds with low expense ratios, funds that are good corporate stewards, and you want to know what you own in the funds…Cheaper funds are far more likely to outperform.”
—Morningstar exec Lutton: Stick with Cheaper Funds
A high-quality 401(k) plan demands thoughtful design, competitive pricing, intelligent modeling and diligent monitoring. We align our proprietary approach to investment selection and monitoring with the most cost/benefit correlated services for recordkeeping and administration. In addition, we recognize that the 401(k) plan services industry is highly dynamic which requires in-depth knowledge and continuing due diligence of all facets.
The above quote, which offers a good definition of a passively managed index fund, says it all.
It is estimated that 84% of a 401(k)’s costs rest with its investments. It is further estimated that participants pay $164 million a day in inflated fees from 401(k) lineups that are over weighted with actively managed mutual funds that are not adding value. These 401(k) lineups are designed to make money from, not for participants. When it comes to most “brand name” actively managed mutual funds like those favored by small plan 401(k) providers, the empirical evidence overwhelmingly suggests they will underperform over time.
NS Capital recognizes that first and foremost, 401(k) plans should be designed to capitalize on a long-term investment horizon which is why we favor low cost funds, a strategy that has long been favored by major corporations. We generally start with a lineup of low-cost index funds that cover the key asset classes to help participants create an intelligent asset allocation. This step alone will maximize their chances to accumulate the assets needed for a comfortable retirement. Next, we make targeted selections of high-quality collective investment trusts and actively managed funds that we feel can be additive to the lineup.
RECORDKEEPING AND ADMINISTRATION
Recordkeeping service providers must offer a full range of services including state-of-the-art technology, an easy to use website for sponsors and participants and a knowledgeable and responsive client services department – all at the right price. The administrator must have extensive regulatory expertise and plan testing capabilities – offering a full range of services including compliance testing, tax documents and trustee services - again at the right price. Plan administration may be performed by the recordkeeper or a Third-Party Administrator depending on plan design.
NS Capital acts as an overseer to the plan. As the landscape evolves, it is our responsibility to make sure the plan stays current and high-quality. This can involve a wholesale change in investments and/or recordkeepers and administration. Most often, it is using our industry knowledge to make more subtle changes – changing a share class of a mutual fund or negotiating a lower price on behalf of a client with a recordkeeper/administrator. The key is staying abreast of this dynamic and competitive marketplace.
SIX REASONS BENCHMARKING YOUR PLAN IS ESSENTIAL
For people responsible for managing their company's 401(k) plan
To get started, provide us with a few details and one of our retirement plan specialists will contact you.
"BEST OF BREED" 401(k) PLAN DESIGN
A Benchmark is a complete evaluation of your current plan. This comprehensive analysis will provide you with a more thorough understanding of plan design, fees,conflicts, investments and fiduciary status.
Now that you fully understand your plan, the focus shifts to the needs and wants of your firm, and the plan's participants. This exploratory meeting will educate us on your unique needs and wants, and introduce you to the dynamic aspects of the retirement plan market, and help us determine the goals of your plan.
With a complete understanding of your goals in mind, NS Capital enters the open marketplace and requests proposals from multiple service providers. This guarantees that we identify the best services at the best price for your plan.
We then assemble the component parts - investments, recordkeeping, administration, sponsor and participant services - each at the best possible price, into the best 401k plan for you and your participants.
IMPORTANT DISCLOSURE INFORMATION
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