It’s probably safe to say that it hasn’t been a good year for the 401(k).
While employees are dealing with plummeting stock values, employers are finding themselves being held responsible for inadequate plan and fund options.
Plan sponsors (employers) have a fiduciary responsibility to plan participants (employees), and that responsibility can be interpreted in different ways.
“There is a higher standard now,” says Chris Chandler, a consultant with Hartland & Co. “Especially with what is going on with Enron. There is a case being dueled out in court right now where the participants were limited to certain investments.”
One of the ways employers are combating employee dissatisfaction and potential liability is by offering the services of a third-party adviser.
“A 401(k) advice provider is a firm that is independent from the plan sponsor and the service provider,” says Chandler. “They are dedicated to offering advice to the plan’s participants.”
Advice providers offer access to independent financial planning, investment advice and retirement planning. However, they are not allowed to advise a participant what to do.
“They can offer the investment options but they are not allowed to offer investment advice,” says Chandler.
Third-party consultants began appearing around 1995 and have traditionally made agreements with plan providers. Some larger companies pay for third-party advisers, but the service is increasingly being offered with a co-pay ranging from $10 to $60, depending on the level of advice.
Companies pay for a basic level of service, and participants have the option of paying for more comprehensive consultation. This can include having an adviser assist employees with every part of their investment and retirement portfolio, not just products offered by the employer.
Chandler says an employee’s use of third-party advisor services is linked to the amount that employee has to pay.
“Adoption is slow in the beginning years,” says Chandler. “But if the companies pay for the service, the adoption rates are much higher.
“The ultimate decision-maker is the plan participant, but the fiduciary responsibility is to provide investment to create a diversified portfolio. They (the employer) are responsible for making sure the investment options are competitive.” How to reach: Hartland &Co.: (216) 621-1090 or www.hartlandco.com
