When you made the decision to set up your company’s 401(k) retirement savings plan, you carefully considered the investment options that your plan provider had available. Your choices were likely based upon factors such as management style, historical performance, the types of asset classes necessary to offer true diversification, and the underlying investment costs to your employees.
Now, when was the last time that you went back and looked at them again with that type of scrutiny?
Well, if it was within the last year, and your process was thorough and documented, you are likely in good shape. But if it has been two years or more since your last analysis, you are creating a risk that must be addressed. As is true in so many areas nowadays, even the best intentions can create litigation risk when proper due diligence and procedures are not consistently followed. What are the primary risks?
- Under-performance - Investment performance and rankings are always changing. Are the “top rated investments” that you originally picked still at the head of their class, or are they now lackluster shadows of what they once were?
- Unreasonable Costs - Are the investments that are offered cost effective as compared to their peers, or are you effectively forcing employees to utilize options that are now expensive as compared to other readily available options?
- Failure to Monitor - Within actively managed funds, investment managers at times tend to stray from their original investment goal. This “style drift” can result in stronger investment performance when effectively managed, but a failure to monitor these changes can create a lack of diversification and heighten investment risk.
- Excessive Proprietary Investment Use - Has your plan made substitutions in their offerings leaving your employees with fewer independent investment options, and a slate of proprietary offerings that are more generous to the investment management firm than to your employees.
Any one of these issues, combined with a disgruntled employee, could be enough to trigger civil or class action litigation. The good news, however, is that there are effective ways to protect your company and your Plan Fiduciaries.
Has your Plan Advisor prepared and presented to you a full review of your company’s 401(k) Plan within the last 18 months? If they have not, you should be asking why. And if they are not, let us know and we would be happy to do so.
At R&R we are specialists in helping to protect you against risk, and to work with you to mitigate your risks as you grow. Our in house Retirement Plan specialists are available to provide a complete review of your company’s Employer-Sponsored Retirement Plan, and to help you to understand what risks are present and how you should be working to address them. There is no cost for this review service, and it requires only a modest investment of time and effort on your part.
You have the option to either work from the belief that your Retirement Plan is in good shape, or you can know for certain that it is. Give us a call and let us provide you with greater peace of mind. It’s what we do at R&R.