Pub. 17 2018-2019 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 3 , 2 0 1 8 14 new jersey auto retailer The basic rule with 401(k)s is that you must take particular care of the three “F Words,” Funds, Fees, and Fidu- ciary Responsibilities, in order to avoid the real and troublesome fourth “F Word,” FINES! In Part One (published in Issue #2, 2018 of New Jersey Auto Retailer) , we talked about the first of the “F Words,” Funds, and how to select a line up of compliance-proof Funds. In Part Two, we will present the recommended, best practices to keep the second “F Word,” Fees, in line. Let’s begin by examining each of the players, and their roles, in the proper management and administration of a 401(k) program. 1. Plan Sponsor: A Firm’s Plan Sponsor selects, works with, and supervises a professional 401(k) Advisor. 2. Plan Advisor: The Advisor provides a well-designed and cost-effective program for the firm’s employees. This includes creating and providing a comprehensive menu of Mutual Funds from which employees can choose, according to their investment preferences. The Advisor also monitors all activ- ities on an ongoing basis, and supervises the Record Keeper, Mutual Funds, and Third-Party Administrator. 3. Plan Record Keeper: The Record Keeper ensures that payroll contributions are allocated to the correct employee account, tracks all activity, provides contribution statements, and provides online access. 4. Mutual Funds: Each Mutual Fund provides its selection of actual stocks and bonds in which to invest. 5. Third-Party Plan Administrator: A Third-Party Adminis- trator creates and maintains the plan documents, performs annual compliance testing, and files the required annual Tax Form 5500. Know The Fees! There are a number of players involved in the proper design and administration of a 401(k) plan, whose functions will have associated fees. Often, a Plan Sponsor will request quotes from several potential 401(k) Advisors, and just as often, these quotes will combine fees in such a way that it is very hard to understand who is charging what. It is critical to understand what each party is charging within the quote, so that the quotes can be compared and evaluated properly. The Importance of Benchmarking! Firms often neglect to actively monitor their 401(k) plan fees, because they are understandably focused on the day-to-day needs of the business. Also, firms don’t realize the potential fines or lawsuits that are lurking until it is too late. A firm must be aware that almost all plan fees are borne by the employees. If the plan costs too much, the employees are paying too much, and this significantly impacts their portfolio growth. Firms can be sued for failure to Review and Benchmark the fees of a plan on a regular basis. The recommended best practice is to “benchmark” a plan every other year, and absolutely not less than every three years. According to estimates provided by The Vanguard Group, reducing annual fees by just 0.50% can increase a retiree’s nest egg by 10% over a 30-year career. What do we mean by “benchmark?” Ask your Advisor to create and send out a Request for Proposal (RFP) for the purpose of obtaining and comparing FEE quotes from no fewer than three providers, with the individual fees broken out for the Advisor, Record Keeper, Mutual Fund, and Third-Party Administrator. The Four “F” Words of 401(k)s: Part Two: Fees BY KEVIN ELLMAN , CFP