As we wrap up our review of the 11th annual Callan DC Trends Survey report we turn our attention to how plan sponsors are measuring success and two growing trends, the use of collective trusts and deliberate efforts to retain participant assets in plans post-separation from service.
In our last post on the 2018 Callan DC Trends report we summarized and commented on findings in the areas of automatic enrollment, escalation and participant default strategies as well as utilization of Roth 401(k) options. In this post we continue by focusing on the practice of bundling or unbundling of services management of plan-related fees and use of independent investment advisors and/or consultants.
“Losing money when investing is as inevitable as death and taxes. Those who immediately fire their advisers for incurring such losses will never be satisfied. I’m referring to short-term losses, over periods as long as a year, if not more. Even advisers with the very best long-term records regularly lose money in many calendar years along the way.”
So writes Mark Hurlbert in a USA Today post entitled “Your financial adviser will lose some of your money. Here’s what to do.” on July 23rd of last year. [Emphasis ours]. He goes on to refer to findings based on the Hurlbert Digest’s forty years of analysis of more than 1000 model portfolios the Digest has audited.
From time to time I get questions from clients about how long they should maintain plan records. Lately these questions have been more narrowly focused. The question now is how long should fiduciary records be kept.
I suppose interest in the question (and all things fiduciary) has been stirred by the litigation in recent years over fiduciary responsibilities. Factor in the considerable debate surrounding DOL’s conflict of interest rule - now in a state of flux with DOL’s reconsideration of the rule - that greatly heightened awareness of fiduciary responsibilities and you get plan sponsors concerned about their liabilities and looking for ways to protect themselves.
The Buying Power Challenge Facing ERISA 403(b) Plans
One of the foundational tenants of fiduciary responsibility is the prudent selection and oversight of plan service providers and investments. Since the 408(b)(2) regulations became effective, we have been living in a new age of accountability for determining, evaluating, documenting and capitalizing on the “reasonableness” of fees for a company or non-profit institution ERISA retirement plan. In the final 408(b)(2) regulations alone, the Department of Labor (DOL) used the word "reasonable" forty-one times specifically referring to fees, compensation, contracts and arrangements.
In our recent post “When Employees Retire Matters…to Employers” we acknowledged that most of the content was from an insurance company deeply committed to the employee retirement plan market. The initial section of this post is drawn from the same with our edits and commentary in italics to this very worthwhile material.
Recently, we received material from an insurance company that is deeply committed to the employee retirement plan market. In our judgement the material provides important and actionable information for plan sponsors. It is not our practice to publish ghost written articles and pass them off under our own name, which is what the company intends and some investment advisors and health insurance brokers choose to do. However, when the material provided is worth reading, we’re happy to excerpt it with, at minimum, disclosure that it isn’t our work or with additional commentary and edits, as we are doing here. The insurance company material follows with our edits in italics like this preface.