The 401(k) concept may be 30 years old, but plan sponsors are feeling growing pains. It's difficult to encourage employees to participate and save more in these plans when they have been spooked by the biggest bear market since the Great Depression. Plan sponsors are also anxious about how a U.S. Department of Labor regulation slated to take effect next January will affect them.

New department rules issued under Section 408(b)(2) of ERISA will require providers and plan sponsors of defined contribution and defined pension plans subject to the act to clearly disclose services provided, explain fees, reveal conflicts of interest and indicate who is acting as a plan fiduciary (a definition currently being re-examined by the Labor Department).

It's also likely to open doors for financial advisors interested in building a niche in 401(k) plan management for small- to midsize businesses.

"It's the perfect opportunity now because so many of the rules of the game are changing. A newcomer can be just as sharp and experienced as someone who's been in it a long time," says advisor Steven Kaye, president of the American Economic Planning Group (AEPG), a wealth management firm in Warren, N.J.

Kaye, who's worked in pension planning for 25 years and began building his 401(k) consulting practice about a decade ago, says roughly one-third of his business now revolves around helping businesses manage their 401(k) plans. AEPG manages 125 plans with $500,000 to $100 million in assets. More than half the plans cover businesses with five to 50 employees, though some top 1,000.

Recently, Kaye has received a lot more inquiries from plan sponsors who've been hearing about the regulatory changes. "Employers are just starting to wake up to the fact that they have a higher level of responsibility and exposure with these plans," he says.

Sharing and reducing plan sponsors' responsibility and exposure is already an integral part of Kaye's practice. His firm offers to serve as a full-scope consultant in line with Section 3(21) of ERISA, a co-fiduciary role that involves controlling, managing and administering plans. His firm will also act as an investment fiduciary in accordance with Section 3(38) of ERISA for those plans with index fund lineups, assuming responsibility and liability for the investment management process.

"Since we've always been a fiduciary and discretionary advisor, being a 3(21) co-fiduciary was a no-brainer," says Kaye. And working in the 3(38) capacity is "a giant marketing plus for us."

But such arrangements are not usually the case. Instead, approximately 70% of the nation's 401(k) plans were installed and are overseen by broker-dealers-who are not typically plan fiduciaries-or novices who manage just one to four plans, notes Kaye. "That's why this area is so open to advisors," he says.

Until now, broker-dealers have been able to avoid the fiduciary requirement if they only give advice occasionally, and if it's not the primary basis for a plan's investments. Under the new Labor Department rule, though, B-Ds will no longer be exempt if they give advice and charge a fee. Rather than become fiduciaries, many of them are expected to abandon the 401(k) space.

What's also changed the 401(k) game, says Kaye, is the U.S. Supreme Court's 2008 decision allowing employees to sue over the mismanagement of 401(k) retirement accounts. Most lawsuits have focused on fees and processes, not performance, he says. He expects this will continue to motivate plan sponsors to seek additional support.

Kaye, who has built his 401(k) practice through word of mouth and professional referrals, has developed a specialty in the medical field and aviation. One client, Swiss International Air Lines Ltd., was recently named a 2011 Plan Sponsor of the Year finalist by Plan Sponsor magazine.

AEPG doesn't just manage investments for clients. It also develops strategic and business plans, writes mission statements and investment policy statements, runs committee agenda meetings and keeps minutes at these meetings. The firm also sets education policy statements and makes sure the education isn't above plan participants' heads. Kaye notes that many plan sponsors would fail Labor Department audits because they don't have written investment policy statements and committee meeting agendas or notes.

Think larger businesses are savvier about 401(k) planning? "They're just as much a mess as small plans," says Kaye, whose firm discovered that one 1,200-employee outfit it started to do work for hadn't conducted employee education in ten years or implemented fund changes in more than five years.

The TRC Group at Morgan Stanley Smith Barney in Rancho Bernardo, Calif., also helps companies manage their 401(k) plans, an effort that accounts for about 75% of its business, focused mainly in San Diego County.

"In this time of turmoil and volatility, employers need help and hand-holding to stay focused on the future," says Tom Kokjohn, one of four financial advisors on the TRC team. His group began focusing on 401(k) plan management eight years ago while they worked together at another firm. Morgan Stanley hired them in 2009 to help grow its corporate retirement plan practice. Form 5500 filings were a good resource when the team initially developed its business through cold calling, says Kokjohn.

It now works with a wide range of 401(k) providers.

The TRC Group takes clients through a profiling questionnaire to help find them their best options. It assesses priorities regarding technology, systems integration, administration, investment flexibility, communication services and fees.

How frequently TRC meets with plan participants varies on the size of a company, its number of locations and Internal Revenue Service testing issues. The IRS requires deferral and contribution percentage tests to prevent 401(k) plan discrimination in favor of highly compensated employees. The group has been trying to ramp up its education efforts to increase employee 401(k) participation and, in turn, enable executives to more fully participate. Automatic enrollment and escalation design features have helped, says Kokjohn. 

Advisor Peggy McGillin, a principal with Journey Financial Planners in Concord, Mass., is only in the early stage of building a 401(k) practice, but she has already learned valuable lessons. "The trick is to really understand the motivation of a business owner without value judgment," she says.

A client she put a 401(k) plan in place for two years ago told her that the other firms fighting for his business were more concerned with creating a tax shelter for him than helping him with his real goal: to hang on to employees. McGillin is also interested in listening to clients' plans for five to ten years out, and learning about their exit strategies.

"That's not to say you can't put a plain vanilla plan in place and change it down the road, but the biggest benefit you can provide a small business owner is to not waste their time and keep them out of trouble," she says.

McGillin admits that cracking the local market has been tough. Many business owners she sought business from told her they were working with a classmate instead, or a relative or someone else who throws them business. She has branched out to Web marketing and plans to launch a 401(k)-related Web site this summer.

McGillin only works with open architecture firms: those that don't choose the fund lineup, pick the third-party administrator or hire the custodian but do offer transparent, line-item fees.

To sharpen their 401(k) knowledge and management skills, advisors are turning to new training programs. This summer, The Retirement Advisor University (TRAU), a strategic partner with the UCLA Anderson School of Management's executive education program, will graduate its first class and award members its Certified 401(k) Professional designation-the C(k)P.

Fred Barstein, the Retirement Advisor University's founder and executive director, expects the number of advisors who manage more than ten plans, manage more than $30 million in 401(k) plan assets, and have more than three years of 401(k) experience to double from 5,000 to 10,000 within five years. This data comes primarily from 401kExchange, a consultant for the small and midsize corporate market that Barstein founded but no longer runs.

That's because plan sponsors are growing more aware of the need for experienced managers, the 401(k) plan has become the primary retirement investment vehicle, and more advisors are recognizing that these plans can provide the opportunity to cross-sell wealth management and benefits to clients. Barstein projects that the number of plan sponsors using a "blind squirrel" advisor, such as a relative or college buddy, could slip to 50% in five years-down from 75% today and 90% five years ago.

Advisor Ross Marino, who spent 12 years helping plan sponsors manage their 401(k) plans and who now trains advisors through his company 401(k)Rekon, says, "It's a great time to be in this space or to make a decision to move out."

"This isn't a part-time business where you do one or two plans every once in a while." A dabbler in this business is dangerous, Marino says, since missing steps can cause a 401(k) plan to become disqualified and taxable. Marino suggests advisors start with smaller plans as they learn the platforms and figure out how to work with different providers.

ERISA/retirement plan attorney Ary Rosenbaum of the Rosenbaum Law Firm in Garden City, N.Y., says financial advisors should get acclimated to the changing definition of fiduciary, the fiduciary process, the development of investment policy statements, participant education and plan expenses.

At the same time, he says, advisors should be wary of taking all plans to only one third-party administrator or provider without checking up on the administrator's work or thinking beyond the basic 401(k), since alternative plans and plan designs may be a better fit. "It's like a game of chess, but too many people only think of the 401(k) from a cookie-cutter approach. That doesn't work," he says.

Advisors lacking the background to become ERISA experts should surround themselves with those who do have it, such as ERISA attorneys or financial consultants, says Rosenbaum. He also suggests looking for someone with experience in the same size plans you intend to offer and with experience working for or with third-party administrator firms.