Ready
Thinks s/he gets paid by the post
Most 401K plans have third party advisors who can provide investment advice to employees if they feel like they need advice on which funds to choose, how to come up with an asset allocation plan, how much they need to put away, etc.
Where I believe these companies got in trouble was they placed actively managed funds into the plan which have 12B-1 fees. The fees were paid as commissions to cover the cost of advisory services and record keeping. They also may have some index funds in the plan, which don't have the 12B-1 fees, and therefore no commissions.
So the advisors were put in a situation where they were recommending to employees which funds to invest in, knowing that if they steer the employees to certain funds, it equates to commissions earned, while the index funds equates to no compensation. So of course there was some questionable judgment on how they came up with their recommendations.
The employers had a duty to ensure that advice being given to employees was in the employee's best interests. But because of the conflict on interest with 12B-1 fees, the advice was potentially suspect.
The new fiduciaries rules that were published in May prohibit 12B-1 fees from being used to compensate advisors and record keepers. This creates an opportunity for every employee who is unhappy with their 401K plan to raise the issue of the new fiduciary regulations to the plan trustee and encourage them to realign their funds to be consistent with the new fiduciary guidelines.
The deadline to comply with these guidelines is 1/1/18. So employers can procrastinate for a bit longer, but at some point they are going to have to fix the issues and replace the funds in their plan, or at least provide a way for the 12B-1 fees to be returned to participants rather than being used as commissions.
For anyone who is currently in a plan they are unhappy with, I would encourage you to read the new fiduciaries rules and raise a fuss in your organization until it gets fixed. I recently did this at the company I work for, and I placed myself in charge of finding a new advisor and replacing all of the funds. It took some nudging and a few unpleasant conversations with the executives, but it was worth it. Eventually, when I'm done, the employees will benefit significantly from lower fees and better fund choices.
Sent from my iPad using Early Retirement Forum
Where I believe these companies got in trouble was they placed actively managed funds into the plan which have 12B-1 fees. The fees were paid as commissions to cover the cost of advisory services and record keeping. They also may have some index funds in the plan, which don't have the 12B-1 fees, and therefore no commissions.
So the advisors were put in a situation where they were recommending to employees which funds to invest in, knowing that if they steer the employees to certain funds, it equates to commissions earned, while the index funds equates to no compensation. So of course there was some questionable judgment on how they came up with their recommendations.
The employers had a duty to ensure that advice being given to employees was in the employee's best interests. But because of the conflict on interest with 12B-1 fees, the advice was potentially suspect.
The new fiduciaries rules that were published in May prohibit 12B-1 fees from being used to compensate advisors and record keepers. This creates an opportunity for every employee who is unhappy with their 401K plan to raise the issue of the new fiduciary regulations to the plan trustee and encourage them to realign their funds to be consistent with the new fiduciary guidelines.
The deadline to comply with these guidelines is 1/1/18. So employers can procrastinate for a bit longer, but at some point they are going to have to fix the issues and replace the funds in their plan, or at least provide a way for the 12B-1 fees to be returned to participants rather than being used as commissions.
For anyone who is currently in a plan they are unhappy with, I would encourage you to read the new fiduciaries rules and raise a fuss in your organization until it gets fixed. I recently did this at the company I work for, and I placed myself in charge of finding a new advisor and replacing all of the funds. It took some nudging and a few unpleasant conversations with the executives, but it was worth it. Eventually, when I'm done, the employees will benefit significantly from lower fees and better fund choices.
Sent from my iPad using Early Retirement Forum
