There was at least $5.2 trillion worth of assets invested in 401(k) qualified retirement savings accounts at the end of 2018. This amounted to nearly 20 percent of all retirement assets in the United States at the time, according to the Investment Company Institute (ICI)—and underscores the critical role these plans play in helping investors save for retirement.
The benefits of qualified retirement plans appear straightforward. Investors get access to tax deferred investment opportunities and, in many cases, an employer match. Meaning, investors (or plan participants) can save up to a certain amount annually tax-free and their employer (or plan sponsor) will match some portion of those savings. These accounts are also regulated according to the Employee Retirement Income Security Act (ERISA), which holds plan sponsors and advisors accountable for acting in the participant’s best interest, in accordance with a fiduciary standard.
Despite this standard, qualified retirement plans are often riddled with conflicts. Pay-to-play kick-backs can limit fund choice for participants, and opaque plan design complicates plan sponsor efforts to carry out their fiduciary obligation. Hidden fees of any kind can be most damaging, limiting the upside potential of participants’ investments.
Advisors who manage qualified retirement savings plans should embrace fee transparency and an open architecture, conflict-free platform that supports plan sponsors’ fiduciary duty and delivers stronger outcomes for participants.
Lack Of Transparency In Retirement Plans Leads To Legal Challenges For The Plan Sponsors You Serve
The Pew Charitable Trusts produced a data visualization in October 2018 that demonstrates the impact of fees on qualified retirement savings plans. It shows the dramatic effect of an investor choosing funds with higher expense ratios in their qualified retirement plan over a sustained period of time compared to an investor who chose more reasonably priced options. In this scenario, the investor who chose the more expensive option lost nearly half of her savings over time to fees.
Over the last decade, much of the retirement services industry and certain large employers have faced pushback from participants who are challenging the negative impact of fees on qualified retirement savings. Since the proposed DOL Fiduciary Rule in 2016, there has been a tenable shift in public demand for transparent financial advice in the investor’s best interest. Tibble vs. Edison made it to the Supreme Court, after 10 years of litigation and a series of rulings upholding the fiduciary obligation of plan sponsors. And BlackRock, Fidelity, Invesco, T. Rowe Price and others all face lawsuits in regard to their 401(k) plan management, per reporting by Barron’s.
There has never been a better time for advisors to choose fee transparency and open architecture over the alternative. Plan sponsors and participants will respond well to a retirement savings experience that aligns with their expectations.
Choose An Open Architecture Platform To Design Transparent, Custom Retirement Plans
Advisors who offer a transparent, conflict-free qualified retirement savings solution stay committed to a three-pronged pledge: