Cease and Desist
During congressional hearings in March, Representative George Miller (D-California) enlightened all of America to both the hidden fees embedded in today’s 401(k) plans and the negative impact of those fees. The hearings opened with Miller posing a question that would alarm anyone who has ever deferred compensation into an employer-sponsored retirement plan: “Are hidden 401(k) fees undermining retirement security?”
Congress, as well as select individuals who were supplying testimony, have led the masses to believe that substantial excess fees and continuous overcharging occurs within the structure of many, if not every, 401(k) plan in America today.
My advice to retirement plan advisers is to cease and desist selling and servicing 401(k) plans. The reason I say that is because the term 401(k) plans woefully fails to articulate the entire story. The successful retirement plan adviser does not just “sell 401(k) plans,” he (or she) delivers a tax-qualified retirement plan vehicle to employers. This vehicle, and the corresponding document approved by the IRS, are utilized then by the employer for the purpose of attracting, retaining, and motivating the best workers that the employer can assemble.
To assist the employer in its efforts to provide this tax-advantaged benefit to employees (and to the employers who choose to match those contributions), the adviser assembles investment prospectuses, growth-of-a-dollar charts, performance summary sheets, diversification charts, and stuffs them (or makes sure that they are stuffed) into a folder. Then, the adviser packs the materials, the computer, the projector, and the doughnuts into his car so that they will be ready tomorrow morning, for the quarterly drive—sometimes through six inches of snow—to the plan sponsor’s production facility. At that point, the adviser dons a yellow hard-hat and safety goggles to meet with participants in their shop, to help them understand how the 401(k) plan works, the importance of saving for retirement, and why participating in their employer’s retirement plan offering is a smart decision.
As I think of how 401(k) plans have been vilified in the press recently, I cannot help but reflect on employee-education meetings I have delivered. Some of the best advice I ever dispensed was not “investment advice” (that was against the law) but was the “financial advice” I gave to workers who had significant outstanding credit-card balances. I know that there are many retirement plan advisers who still continue to provide that kind of holistic financial advice personally to plan participants—much-needed advice uncompensated by 401(k) fees, “hidden” or visible.
Rather than be forced into defending the fees of the 401(k) plan, we should consider singing the virtues of what we provide to the plan sponsor and participants: custody of the assets, the Form 5500 Annual Report, loan modeling for participants, consulting services furnished to the plan sponsor, the Statement of Investment Policy—and the list goes on.
To address everything that plan advisers and vendors deliver in these relationships under the moniker of “401(k) “is to slight the effort of what is being delivered. We deliver a substantial amount of consulting, administration, investment management, documentation, and design to each of our clients. I am confident that any regulatory body or politician who understands the systemic requirements and the components of a 401(k) plan would be hard-pressed to find a more successful retirement savings system around the globe.
Until they do, it might be time to start selling something other than 401(k) plans.
Steff C. Chalk is Founder and President of CHALK 401(k) Advisory Board, with a client list that includes corporations, nonprofits, and governmental units. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How To Build a Successful 401(k) and Retirement Plan Advisory Business.