Who’s responsible for your 401k plan?

When employees purchase a 401k, they expect their fiduciary to provide them with the best product possible. Since most employees are not knowledgeable about investment choices and returns, they trust their fiduciary, to choose the right seller that will take the best care of their retirement money. They are basically placing their future in this person’s hands.

Apart from this, a fiduciary is legally bound to manage his clients’ money, in their best interest. In reality however, does it really work this way? The fiduciary’s employer does not authorize his employees to help you select the proper 401k vendor. Nor is the fiduciary allowed, to help you choose the funds where you want to allocate your contributions. This would put them at risk, of being sued by the employees in cases where the plans underperform or not properly managed.

The trouble with this system is that employers are not realizing that their agent is not giving the employees investments advise. At the end of the day, what’s important for fiduciaries is getting more commission and more money in their pocket. What they are doing is just handing over the forms, and wishing the employees the best of luck with their new 401k plan. What would you call this? I can barely call it educating employees. This approach is definitely not helping employees in making the right financial decisions.

It seems that employees barely check their retirement plan statement as they should. So how can you expect them to make good investment decisions? Since 2008, 401k vendors have been licensed to give their clients investment advice. Then again, this does not solve the problem, since bank or insurance companies who own investment funds, will obviously recommend their own funds to your employees.

The new pension law, allows investors to have more information regarding their investment, from their 401k plan provider. It also supports an increase in 401k plan contributions. This is definitely the way to go. To improve the situation furthers, employers need to be knowledgeable buyers, who understand their responsibility as fiduciaries, and acknowledge that they are responsible for their employees’ retirement money, and also their future. Employers need to do their home work; study how the 401k plans work, and what the pricing structure is.

Finally the authorities have to realize the abuses that take place, and assist, in providing a more accountable system.

Reference http://www.401khelpcenter.com/ackley_fees.html