Is Your 401(k) Plan Fishy?
Having grown up near the ocean in Massachusetts, I’ve always had respect for hard-working fishermen and women. But I don’t think I’ve ever met anyone who loved the smell of fish. Let’s be honest, it’s not the most pleasant aroma, which is why saying something “smells fishy” has a negative connotation. When something smells fishy, it’s an indication that something is wrong and needs your immediate attention.
When it comes to a company’s 401(k) plan, if something smells fishy, there may be issues that need to be addressed — and quickly — before things get worse. On a recent call with a prospective client which, coincidentally, happened to be a local seafood company, I came to the conclusion that something smelled fishy about their 401(k) plan.
How did I come to this conclusion? Well, as part of my work as a 3(38) fiduciary, I routinely review 401(k) plans on the Department of Labor’s website. Every year, I end up looking at hundreds and hundreds of 401(k) plans. If I find issues with a company’s plan, I often contact someone on the management team to bring it to their attention. Sometimes it’s a cold call, sometimes I am introduced by a colleague.
With all of the recent headlines about plan fees, fiduciaries and litigation, one would think that a CEO, CFO or HR Director would appreciate learning about issues within their 401(k) plan. However, this is not the case. Years of being badgered by telemarketers with bad pitches have made business leaders wary. I don’t blame executives for being skeptical; after all, I grew up in a family business, and I used to be the phone call gatekeeper.
But there’s a real issue here that executives can’t afford to ignore. Unfortunately, problems with 401(k) and 403(b) plans often cost employees tens of thousands of dollars a year — in some cases even hundreds of thousands. Luckily, I’m tenacious, especially when I really care about righting a wrong, so I’ve been able to help quite a few businesses address these types of issues and get back on track.
This brings me back to that local seafood company. About a year ago, a friend of mine introduced me to the CEO, so I had the opportunity to discuss my findings regarding their 401(k) plan. It was in desperate need of a review; the way in which it was operating was wasting over $30,000 per year of the participants’ money, including expensive share classes, poor funds and costly record-keeping. The CEO introduced me to the HR Director, who was in charge of the plan. We had a great call, but I was told this issue with their plan was not a priority at the time. At her request, she asked I follow up with her in a few months. I did this until almost a year went by. She then asked for a brief call where I was politely thanked for my diligence and told, “We are too busy to deal with this now and don’t need your help. Things are fine the way they are. Please don’t contact me again.” Mic drop.
Besides feeling angry and like I wasted my time, I felt like I’d let the employees of that seafood company down. The back-of-the-napkin math I did at my desk after that last phone call showed me that these issues were costing each employee around $1,000 per year in excess fees. That may not sound like a lot of money to some people, but to others it could make a huge difference. I became a financial advisor so I could help people, whether it’s by helping them save for retirement or by figuring out how to cut fees on their 401(k) plan, and it pains me to witness businesses refusing that help.
As a fiduciary and representative of the financial services industry, I feel we need to be more transparent about plan fees and help employers and plan sponsors lower them for their participants. We also need to do a better job of educating them about being a fiduciary and the process it involves. I’m proud to say that at Twelve Points, we continue to lead the charge on these types of issues. In the meantime, I haven’t given up on trying to make businesses aware of their plan issues — but I’ve got a feeling I’m going to need a bigger fishing rod.