Diagnosing Illnesses in your 401(k) Plan
We have mentioned before the fiduciary duties that apply to all qualified retirement plans. According to the Department of Labor, who enforces key provisions of ERISA laws, these duties include:
- Operating the plan solely in the interest of plan participants and their beneficiaries.
- Making reasonable decisions for the plan and carrying out duties sensibly.
- Diversifying the plan’s investments.
- Insuring that participants in the plan pay only reasonable expenses for administering the plan and investing the assets.
- Monitoring all service providers, fees and investments on an ongoing basis.
So, what is one to do if they are busy practicing medicine or running a medical practice to make sure they are doing everything properly? Consider hiring a financial advisor who can help in working with qualified retirement plans. As an advisor I can help you establish a documented process for ongoing review of all important aspects of your plan. This is most commonly done through a process known as “benchmarking”. Benchmarking is a process of comparing all of the services, costs, investments, etc. in your plan to make sure your decisions continue to be prudent and that plan costs are reasonable. What is “reasonable” for this purpose? It is not defined in the regulations.
Retirement plan advisors have tools and processes to help their clients benchmark their plans in the appropriate way, as well as to help properly interpret the results of a benchmarking process. New fee disclosure regulations effective in 2012 have highlighted fee benchmarking, but a serious and comprehensive benchmarking goes well beyond just the fees. As stated in the DOL publication Meeting Your Fiduciary Responsibilities “fees are just one of several factors fiduciaries need to consider in deciding on service providers and plan investments”. But making sure fees are reasonable is an important aspect of fiduciary duties and, generally, advisors with experience focusing on retirement plans are best positioned to help you properly benchmark your plan and, in so doing, help protect you from unexpected and unwelcomed problems down the road.