Obligations of Financial Groups to Employees Information/Training upda

[Guest valvobill]

Question:

Our firm has had a 401k program for about 5 years .Initially the Financial group educated the personnel on 401k plans and we all signed up.In the last 3-4 years the financial group's only direct communication is with the periodic reports as well as an on an line or phone call method of communication.I am concerned that the common man to the person, may be hurt during this period by basically not making correct decisions. With the stock market like it is ,i myself have been paying closer attention. Is it felt that a Financial group administering a 401k program should or should not have more periodic live contact ie meetings with the employees or not. Should the "They are old enough to make their own decisions" be good enough?When the only contact is to deliver the employee year end reports to the office manager for lunch it makes me wonder here. Perhaps their only obligation has been met. Do other financial groups have a more proactive approach or am i just concerned about nothing?

Any help here will be appreciated.

[Guest PAUL DUGAN]

First I would like to state that the investment firm has no legal requirements educate the participants, the DOL places this burden on the Plan Sponsor.

As a TPA this is the complaint that I hear hear most often regarding investment firms. However it is a question of economics. It is profitable to hold education meetings for 50 to 100 EEs but not for 1 or 2 EEs that might make contributions of 10 to 20 dollars per pay period.

I just got involved in a Plan with 60 EEs were the commisions were 2.5% of contributions for the 1st 2 years and .25% of assets thereafter. The first year the broker made over $5,000 dollars. In the 3rd year there were 3 $20,000 a year EEs eligible - adittional income would have been a max of $15 (2,000*3*.0025). He never showed up. He was out looking for new plans.

My suggestion is buy no load funds and put it out to bid ever 2 or 3 years.

[LCARUSI]

There are other ways to provide quality education other than conducting meetings - an obvious way now is the internet. It has the advantage of being continuous as opposed to being a once/per year event.

Another obvious strategy would be periodic mailings

[Jon Chambers]

In general, you get what you pay for. But if you are using commissionable funds, you are paying for some service from your broker of record. I'd suggest following up with your broker and requesting update meetings. If this doesn't work, consider switching broker of record. There are many brokers who do a good job serving plans, and for them, all the revenue from your plan would be "new" (to address Paul's point). Alternately, you could go no-load and pay a fee based advisor to do meetings, probably for a lower total cost than your commissionable funds structure.

Hope this helps,

[QDROphile]

Mr. Dugan: It is a common misperception that anyone, including a plan sponsor or fiduciary, has an obligation to provide investment education to participants. There is no such obligation.

[Jon Chambers]

Although it is a fiduciary duty to be sure that fees are reasonable, given services provided. When a fund includes fees specifically earmarked to compensate a financial advisor for providing investment education services, and those services aren't delivered, I'd suggest that it would be a breach of fiduciary duty if the sponsor doesn't either get the services or transition to funds that don't have the fee. I may be tilting at windmills, but...

[Kristina]

QDROphile. If the trustee is relying on 404c to reduce his fiduciary liability for the investment decisions of the participants, then he must provide investment information to his participants at least quarterly.

An investment broker or salesperson should be morally obligated, if not legally so, to help the Trustee to provide the investment information to the plan participants if 404c was the basis for his sales presentation.

[LCARUSI]

QDROphile - Common sense dictates the sponsor would want its employees to have appropriate investment education before making investment decisions in a 401(k) Plan. Let's forget about whether or not they must.

[QDROphile]

The information required by the regulations under section 404© of ERISA is not what one would normally call "investment education." There is no requirement to provide investment education.

Understanding what is required and what is not required is important for many reasons, including a a full and appropriate response to the initial question.

Describing what is required and what is not required is certainly not the end of consideration or discussion about what is desirable. But appropriate consideration or discussion of what is desirable should not be based on a mistaken premise. Sponsor provided investment education is not always desirable. What is not said can be as important as what is said.

[Guest 401kguy]

QDROhile has pegged the issue. Doesn't matter if it's the law, plan sponsors should WANT their EE's to train not only as it concerns retirement plan choices, but in financial matters in general. Researchers at Virginia Tech have produced evidence that financial education can have a profound inpact on the workplace: increased productivity; increased understanding and participation in benefit programs; readiness to retire; increased employee retention, morale and loyalty; reduction in theft and so on.

Something to consider - but you are not likely to get pure education from your plan provider, especially if your provider is a financial services firm whose reps are off looking for the next plan. . And no matter who your provider is, there is nothing like good, old-fashioned, roll up your sleeves financial education and training - and I'm not talking about canned selling seminars. Food for thought.