TODAY’S REALITY

We only need to read a few books or listen to a few podcasts on personal productivity or effectiveness to realize a common theme — that each of us should spend our time in the areas of our unique skills and value. Unfortunately, modern business demands, especially for emerging and middle-market companies, often require C-suite executives to oversee a variety of areas. One area where we see this routinely is in the management of the 401(k) plan.

WHAT IS A FIDUCIARY?

In relation to the retirement plan - A fiduciary is a person or entity responsible for managing a qualified retirement plan in accordance with the Employee Retirement Income Security Act (ERISA)(1). Those who serve as fiduciary for a 401(k) plan are involved in a critical and time-consuming process. Fortunately, ERISA anticipated this and adopted a powerful solution. The ERISA code allows the fiduciary to delegate and transfer the functional investment management and liability under ERISA Section 3(38).

Although they may not realize it directly, fiduciaries have a clear choice as to how much fiduciary liability they want to retain in relation to investment management. The chart below summarizes the options:

EVOLVING MARKETPLACE

In the chart above, we have three levels that a plan sponsor can request. This includes 20.2 percent who have retained an ERISA 3(38) retirement plan Advisor and delegated the responsibility. Unfortunately, per 401(k) Plan Sponsor data from 2016 (2) we note that 43.9 percent of plan sponsors “are unsure of Advisor type” for their retirement plan. It appears that many advisors have done a very poor job educating the Plan Sponsor on their options, and, therefore, the Plan Sponsor is unsure of which level of support they currently have.

In addition, The PIMCO 2018 Defined Contribution Trends Survey documents the top 20 services experiencing the biggest demand from Plan Sponsors (4).  The survey highlights the selection of an ERISA 3(38) Investment Advisor as the third-fastest growing trend in the entire marketplace — placing immediately behind:

  #1. Plan Cost/Fee study
  #2. Recordkeeping Search
  #3. Delegated Investment Management

The feedback from Plan Sponsors making the switch to “have it done for them” boils down to three key reasons:

1. Mitigation of Risk
2. Insufficient Internal Investment Expertise
3. Ability to Hand Over Reins on Investments

Armed with this information, we believe each Plan Sponsor will be able to make an informed and appropriate decision for their company.

Contact Stan Milovancev to learn more about this topic.
330.255.4329 | retire@sequoia-financial.com

 

1. merriam-webster.com/dictionary/fiduciary
2. Profit Sharing and 401(k) plan survey – 2016 60th Annual PSCA Survey
3. PIMCO 12 Annual Defined Contribution Trends Survey 2018 report
 
 
This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. The opinions expressed do not necessarily reflect those of author and are subject to change without notice. Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.