The Frugal Fiduciary Blog

401(k) Index Funds – They Make it Easy to Reduce Fiduciary Liability

Posted by Eric Droblyen on Feb 22, 2017

Investment in equity index funds – and other passively-managed investments designed to track a market index – is exploding. According to a Morningstar study, these investments took in a record $504.8 billion in 2016. That’s in contrast to actively-managed funds, which are designed to outperform an index. These funds experienced outflows of $340.1 billion in 2016.

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Topics: Investments, Financial Advice

Picking 401k Investments and Related Services Is Easy When Fiduciaries Know Their Options

Posted by Eric Droblyen on Apr 6, 2016

When a small business sponsors a 401k plan, several investment-related decisions must be made by fiduciaries. Dramatically different fees and expenses can result from this decision-making, so fiduciaries should know their options in order to make “prudent” decisions on behalf of plan participants – an obligation under ERISA. Otherwise, personal liability can result.

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Topics: Investments, Provider Shopping, Financial Advice

SEC Money Market Reform Will Affect Many Small Business 401ks in 2016; 401k Fiduciaries Should Understand its Consequences

Posted by Eric Droblyen on Mar 9, 2016

Most 401k plans today offer a low risk investment option designed to maintain a constant net asset value. This option is usually a money market or stable value fund.

Recently, the Securities Exchange Commission (SEC) made changes to the rules that govern money market mutual funds (MMFs). These changes are intended to increase MMF transparency as well as give investors additional protection during periods of extraordinary market stress, when redemptions in some MMFs can increase significantly. These changes are effective October 14, 2016.

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Topics: Fiduciary Responsibiilty, Investments

Good News, 401k Fiduciaries! DOL Fee Disclosure Rules Make ERISA 404(c) Compliance Simple

Posted by Eric Droblyen on Dec 2, 2015

During the 4th quarter of each year, most 401k sponsors are distributing notices to participants that disclose certain plan information about the upcoming year – the safe harbor 401k notice is an example. Most sponsors try to coordinate the distribution of these notices with their plan’s annual fee disclosure notice, which is required under ERISA 404a-5 (“404a-5 notice”).

The 404a-5 notice discloses certain plan expenses (administration, individual and investment-related) to 401k participants. First required in 2012, its purpose is to help 401k participants make informed plan choices.

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Topics: Fiduciary Responsibiilty, Investments

Selecting 401k Service Providers: Determine the Professional Help You Need Before You Shop

Posted by Eric Droblyen on Oct 21, 2015

Selecting competent service providers is the most important - and most confusing - fiduciary duty of a 401k sponsor. Why? Services offered by 401k providers can vary dramatically in breadth, depth and price. This variability makes it difficult for 401k sponsors to match appropriate services to plan needs. Many small business 401k plans pay for superfluous services participants do not use. These excess services are often expensive, dragging down participant investment returns and creating potential personal fiduciary liability for the 401k sponsor.

If you sponsor a 401k plan, I recommend following a two-step process to ensure your plan does not pay fees for services your participants will not use: 1) understand the services that compose a 401k plan and 2) determine which of these services require professional assistance to deliver. Once this process is complete, you’ll be ready to shop for professional service providers.

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Topics: Fiduciary Responsibiilty, Investments, Provider Shopping, Financial Advice

The Federal TSP Is a Baseline for 401k Plans – And Any Small Business Can Match It

Posted by Eric Droblyen on Sep 23, 2015

Last week, the Investment Company Institute (ICI), a financial industry association representing mutual fund managers, published a “research” paper about the TSP, titled The Federal Thrift Savings Plan: Can It Be Duplicated? In it, the ICI says the TSP “is often portrayed as a standard for all participant-directed retirement plans…the TSP is a unique arrangement that cannot be compared with or duplicated by 401(k) plans.” This is empty rhetoric from a group representing companies that would lose revenue if more 401k plans adopted a TSP-like investing approach. Small businesses can absolutely have a 401k plan similar to the TSP. And I’m happy to explain how.

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Topics: Investments

401k Participants Should Leave Investing to the Pros; Focus on Saving

Posted by Eric Droblyen on Jun 3, 2015

Saving for retirement is one of the most important things we must do during our working years.  After all, nobody can work forever and living expenses don’t stop after you stop earning a paycheck.  And yet too many of us aren’t saving enough for retirement.  Why is that?  For workers that can afford to save, I think the number one reason is the inability to cut through the complexities of saving and investing.  Today, workers must answer complicated questions to successfully participate in a 401k plan.  I believe these questions scare a lot of workers away from giving their savings enough thoughtful consideration.

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Topics: Investments, Retirement Planning, Financial Advice

JP Morgan publishes a piece on choosing target date funds for your plan. Good points made, but even better points are left out.

Posted by Greg Carpenter on Dec 23, 2014

I welcome this “Retirement Insights” piece from J. P. Morgan Asset Management – as far as it goes. The piece makes several excellent points that can benefit all plan sponsors, but presents a view biased toward active management. No surprise. JP Morgan actively manages retirement plan investments – they have a point of view that ultimately promotes the company’s business and brand.

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Topics: Investments

Edison International case highlights a needed reform: Share class restrictions in 401k plans.

Posted by Greg Carpenter on Oct 22, 2014

401k Plans
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Topics: Revenue Sharing, Fiduciary Responsibiilty, Investments

Brokerage Windows in 401k Plans: Nope. Not even if they say “pretty please.”

Posted by Greg Carpenter on Sep 10, 2014

With Hurricane Sandy bearing down on New Jersey in 2012, Governor Chris Christie memorably took to the airwaves. “Get the hell off the beach!” he scolded the stragglers who did not take the storm threat seriously. I feel the same way about brokerage windows within 401k plans. They are risky, potentially very expensive and appropriate for only a very small fraction of 401k investors. Don’t offer them in your plan. Period. If a weather professional (think the great Jim Cantore) wants to stand in the middle of a hurricane, that’s his business. Everyone else – Get off the beach!

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Topics: Fiduciary Responsibiilty, Investments

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