January 1, 2009 will be judgment day for insurance agents and stockbrokers in Oklahoma that sell 401k plans to employers.  And, it is great news for Oklahoma employers that have been always been scratching their heads whenever they heard their insurance agent or 401k vendor say "don't worry, the 401k plan cost you nothing."  Yeah rrrright, and Will Rogers was born in Texas.  The Department of Labor's (DOL) proposed regulation under ERISA section 408 (b) (2) will require covered service providers (that's insurance-mutual fund companies & TPA's)including all agents, brokers and advisors have written contracts or arrangements with 401k plan sponsors (you the employer).  The uniqueness of this is that your advisor is going to have to spell out what fees he receives, and most importantly if, he is a partner or salesmen.  More on this in a moment. 

  Conflict of Interest?  For the first time ever employers get to really see what their insurance company, mutual fund or TPA is truly making off their employees 401k retirement money.  And, before the plan goes into effect, these service agreements must include extensive disclosure concerning compensation and conflicts of interest.  For once, your local TPA, bank, insurance company and any salesmen selling 401k plans, must disclose all fees and conflicts of interest.  For example, do you think that a famous Bank in our Sooner State that sells 401k plans makes more money from their own mutual funds or Fidelity's mutual funds they sell in their 401k plan?  From Ok401k's point of view, this is generating pure panic in the investment community because some people will not want to have these secrets revealed.  No we don't see salesmen jumping off high rise window sills yet but we at Ok401k believe this new regulation is a welcome relief for employers that truly want to offer low cost 401k plans.    

  Now on to that idea that your 401k broker is a true partner or just a salesman.  Think about how you buy any product or service today for your home.  If you buy a new car or plasma TV, you expect the dealer and manufacturer to stand behind their products. Correct? It only makes sense you would require the same from the stockbroker or insurance agent that helped you pick your company's 401(k) vendor. Employees, after all, are counting on you to choose the right 401k vendor and advisor to manage their retirement money. As their fiduciary, you are legally responsible for managing their 401k money in their best interests.  ERISA requires fiduciaries of retirement plans to make decisions based solely on the best interests of plan participants.  As long as the fiduciary can demonstrate with documentation that employee's best interest were considered, a decision resulting in a loss to the participant doesn't necessarily mean that the fiduciary is in violation of ERISA.  Now starting in 2009, you get to ask your Oklahoma life insurance agent or stockbroker if they are a fiduciary advisor or simply a commissioned salesman?  The difference is huge and you better know which one is better.     

  What is the future Gold Standard For Employers When Selecting a 401k Advisor?  Today if you ask the insurance agent or broker you hired to stand behind the 401(k) vendor they're recommending, they will likely will head for the hills. Their stockbroker headquarters and insurance agency won't allow them to help you select the 401(k) vendor, add or delete the specific funds to be offered by the 401(k) or provide real investment advice to your employees.  By exercising those skills it would make them a co-fiduciary.  And, their supervising firm will not allow them to sign on as a co fiduciary because it is a huge unnecessary risk.  Why take the risk when they can be a salesman and not a fiduciary?  A salesman has no "skin in the game" and if you are ever sued by a retired employee that says he should have $500,000 instead of $300,000 in his 401k, your advisor gets to dodge that bullet.  Believe it or not it's happening.  Today, more then ever employers and employees are suing 401k vendors and the agents that sold them the plan for high hidden fees and other problems.  Last year the St. Louis law firm of Schlichter, Bogard & Denton filed a wave of class action suits against Northrop Grumman, Lockheed Martin, International Paper Co. and United Technologies for high hidden fees that hurt the employees.  The Supreme Court in early 2008 approved an employees law suit against his employer in Texas to proceed.  If your advisor is a "salesman" and not a co-fiduciary on your 401k, they are not able to be drawn into any future litigation.   Only fiducairy advisors can be named beause they take responsibility for the supervision of the 401k plan, choosing funds, adding or deleting them and real investment advice to your employees.    Which one do you want?   

  Advice or Education? In Oklahoma most employers don't realize their broker or insurance agent, to which they may be paying big commissions that are typically netted out of the employees 401k returns; hasn't been providing their workers with investment advice. Brokers or agents, unless they're willing to be co-fiduciaries, simply hand out enrollment literature and wish employees good luck at being their own chief investment officers.  In the securities industry this is called investment education not investment advice.  A big difference when it comes to helping your employees.  Your secretary can hand out enrollment kits and tell the employee to take the risk test that will help them pick the funds they need to be in their 401k portfolio.  With today's rapidly maturing 401k market, you now get to demand from your advisor which role they play.  

 

The Heck With A Fiduciary Advisor.  Why not pick Keep Your Salesman?   The current system, since the first 401k plan was invented in 1981, is not working.  Like the rest of the country, studies show employees aren't good investors. Employees are not saving enough and day trading in their 401k.  They're more lost than Gilligan on an island, when it comes to picking their own funds in their retirement plans. According to a recent Dalbar study, the average investor from 1984 to 2004 had a 3.7 percent return on their money, compared with a 12.7 percent by the S&P 500 during the same time period. The vast majority do not even rebalance their portfolio once their funds are selected at enrollment!  Moreover, the Internet and toll-free telephone services 401(k) providers are a resounding failure. Most employees who access their web site are merely checking 401k balances.  Your employees are screaming for face to face investment help and real advice.  Not someone that hands out enrollment kits. 

 

  Pushing Your Own Home Cooking!  What about banks, mutual fund or insurance companies that own their own investments inside of your 401k plan?  It is getting scarier then ever for employers trying to figure out who their friend is.  Under the Pension Protection Act of 2006, 401(k) 401k providers,  starting in 2008,  can provide employees with investment advice. From Ok401k's point of view, this is like the proverbial fox watching the hen house. If a bank, insurance or mutual fund company owns mutual funds inside their own 401(k) plan, which funds do you think they'll recommend to your employees? Their own. Though the new act includes some protections, there's still plenty of room for employee neglect and abuse and only an independent 401k advisor will protect you and your employees.  So, you as an Oklahoma employer,  need to know what side your advisor and 401k provider/vendor stands behind.  What is amazing to us is that we meet with many employers all the time in Oklahoma who tell us they just had a great 401k annual review.  We always ask who provided the data and review and their typical answer?  Their 401k vendor!  Ouch!  

  The Big Wrap Up!  Remember, you as the fiduciary on your 401(k) plan -- have a duty to your employees to review fees and investments yearly for appropriateness. Do you have time for that?  You would rather run your own business.  Do you want to rely upon your 401k vendor to provide annual review data that may be slightly presented in their favor?  Or an independent advisor who is also acting as a co-fiduciary and is a partner with you?        

  In summary, what makes sense is to hire an independent fiduciary advisor, who provides you with real advice, and spells out exactly what their role is to you and your employees and reveals any conflicts of interest.    Don't you feel great now that you know Congress and the DOL have finally provided you with a road map to managing your 401k plan properly for your employees?