With transparency and fiduciary legislation looming that will affect 401(k) plans and how they're administered, it's time for advisors to make some big decisions: Step up their game or move to the sidelines. Those who continue to advise for 401(k) plans must be aware of the more complicated compliance issues and the high price of potential mistakes.

Financial regulatory reform came more quickly to other sectors, but that is likely to change this year as stricter regulation approaches. The first wave of retirees bitten by the economic turmoil in their investment accounts have inspired a new wave of regulatory scrutiny directed at retirement accounts.

Countless Americans rely on defined contribution plans as their only planned retirement income, so it's no surprise that many of the changes to these accounts involve updating the investment menus to achieve more and different goals than these plans addressed in the past. That means considering inflation-protected options and deciding whether advised managed accounts still make sense. A review of auto enrollment structures is also appropriate to determine whether they meet participants' needs and are appropriate for their current situations.

Roth options are also back on the table. While the retirement market never completely embraced these plans, extension of the Bush tax cuts may be the best way for participants to take advantage of the potentially lower income tax rates.

As a tumultuous economy settles into recovery, it remains a challenge to provide program options that address participants' varying financial goals-from older adults transitioning into retirement to younger employees who are evaluating the country's economic outlook and choosing whether to address short-term financial needs or to save for retirement.

Plan sponsors are working to help participants reach their retirement objectives, and they're finding that the investment options they build into their plans have to change. Now is a good time to consider adding inflation hedges and investments that offer a more conservative outlook that balances growth, capital preservation and liquidity-descriptors that were decidedly less desirable in recent boom times.

Five Key Adjustments For Successful 401(k) Advisors
Evolving legislation and compliance issues requires constant monitoring and adaptation. Whenever possible, plan ahead and make adjustments in advance. Here are some areas to pay special attention to as requirements continue to shift.

1.    Examine fees. One of the primary changes affecting 401(k) sponsors involves the disclosure of fees. Don't wait until the new requirements take effect in 2012. Take time now to determine who's responsible for reporting fees, which participant communications they're required to appear in, and how best to manage the change with the least client confusion and disruption.

2.    Comparison shopping has become vital. Compare fees and benefits on an ongoing basis-at least annually or when assets reach certain fee breakpoint milestones-so that nothing slips through the cracks and you're able to offer the best investment vehicles in real time. Get required disclosures from investments upfront and document your processes in your fee policy statement so there are no gray areas.

3.    Evaluate new retirement strategies. The drastic economic changes have spurred a wave of new retirement income products and tools. Understand what's available so that you're primed to introduce the strategies that address your client base.

4.    Reevaluate auto enrollment. Because the environment has shifted, with more participants scrutinizing details they previously ignored, this is no time to let auto enrollment go on autopilot. Decide whether it's time to increase auto enrollment contribution rates and whether vesting schedules and withdrawal provisions remain appropriate.

5.    Keep an eye on stable value wrap contracts. Federal regulatory agency studies haven't yet announced whether stable value wrap contracts will be exempt from Wall Street Reform and the Consumer Protection Act. Be prepared to adjust offerings when this decision comes through.

Choosing A Partner To Outsource Compliance Headaches
If all that sounds like more trouble than it's worth, consider hosting 401(k) services through another firm. If you manage these plans only rarely, you're probably better off either moving them off your service list or partnering with another firm or advisor who will be more efficient and is willing to take on the liabilities. Opting out of the 401(k) market still requires some homework if you decide to go the partnership route, because careful selection is required to ensure a good fit and that your reputation is protected; their mistakes can certainly tarnish your image with shared clients.

Begin by benchmarking a variety of vendors' 401(k) performance. Meet with the top firms and get a feel for how they do business, whether they're a good match with your company and how they can best service your clients. Define roles upfront to avoid surprises. It's also a great time to review their plans to handle the upcoming compliance issues. Interview company principals to make sure your business philosophies and service standards are aligned.


Darin Gibson, MBA, CFP, ChFC, CLU, is owner and president of Burnham Gibson Financial Group Inc. in Irvine, Calif. Gibson manages $350 million in assets for individual and corporate clients. Burnham Gibson currently manages 401(k) plans for companies ranging in size from 10 to 3,000 employees and partners with other firms to manage such plans.