6. 401(k) Issues . . .
What is the Problem with 401(k) Plans?
• Fiduciary and Plan Administrator Roles
• Effort Redundancy
• Brown Processes (Paper Waste)
• Participant Investment Behavior
• Conflicts of Interest
• “Our Plan should/could/must do what?”
7. THE FIDUCIARY AND PLAN
ADMINISTRATOR PROBLEM
• Act “Solely in the Interests of Plan Participants” . . .
The Legal Standard
is to act with “the • Act as a “Prudent Expert” and be a Fiduciary with regard to:
care, skill, prudence – Overall Reasonableness of Plan Fees and Expenses
and diligence under • Understand flow of Sub-TA, Shareholder Servicing and 12-b1 fees
the circumstances
• Assess all wrap fees and all participant-level fees for reasonableness
then prevailing that
a prudent man – Service Provider Oversight
acting in a like • Conflict of Interest assessment in platform restrictions
capacity and familiar • Periodic evaluation of fee structure with market
with such matters – Operation of Plan in accordance with written Investment Policy Statement
would use . . .” – Investments:
• Performance of Investment Options
For most • Style Drift/Style Purity
employers, this • Construction of Appropriate Liability
is a daunting • Removal of Underperforming Investment Options
task and more
than 80% of all
plans are out of
• Be the “Plan Administrator” – be responsible for:
compliance
– Timely Deposits of Contributions
(according to – Setting Plan-Level Eligibility requirements
the DOL) – Loans, Hardships, Distributions
– QDRO Approval
– 5500 Approval & Filing
– Summary Annual Report and Summary Plan Description distribution
– Ensuring Plan Document revisions and SPD re-distribution
– Audit Coordination
– 404(c) Communications to Plan Participants
– Fiduciary Liability Insurance & ERISA Bonding Requirements
– Ensuring participants are receiving education or advice about plan investments
8. But how hard could that really be?
EXAMPLE: FEE OVERSIGHT
SOURCES: INVESTMENT COMPANY INSTITUTE
PROFIT-SHARING COUNCIL OF AMERICA
9. Effort Redundancy &
Paper Waste Problems
• Individual company 401(k) plans:
Many 401(k) plans
operate as they did
in the 1980’s – lots – Waste paper to give information that is unused or thrown
of paper processes away:
and manual data
transfers that waste
• Summary Plan Descriptions
time, money and • Prospectuses
natural resources
• Paper Statements
• Enrollment materials
• Summary Annual Reports
Employers trying
to meet the real
legal of 401(k) – Waste time and energy of employees:
plans end up
wasting time of • Investment Committees and Trustee Briefings
employees to
both administer • “Education” sessions that eat up productive time
and participate
in the program
• Eat up administrative time for all the multiple aspects
of running the plan:
– QDRO, hardship, loan, and distribution approvals
– 5500 and SAR reporting
– Coordination of auditors
– Arranging time for EE’s to meet with enrollers/educators
– Tracking down lost or missing paperwork from employees
10. Effort Redundancy &
Paper Waste Problems
The desire of
employers to offer a
401(k) plan is
• The Administration of 401(k) plans is not why a
legitimate; the company goes into business.
desire of employees
to have a 401(k) plan – Companies would never dream of operating other
is real; the
assumption that the employee benefits this way
company should be
the legal fiduciary
• Example: Health Insurance
and administrative
liaison/operator
should be called into
question.
• Having many small-to-midsize companies
operating “unique” 401(k) plans that are largely
A better business
model for 401(k) indistinguishable from each other is not smart
would be to
replicate the – Repetition of time, money and effort for similar tasks:
business model of
insurance benefits • Investment Committees
administration
outsourcing - and • Plan Oversight
corresponding
liability &
• Plan Administration
administrative
duties transfer to
those companies
• Economies of scale not present in 401(k) plans
11. Other Major 401(k) Problems
• Participant Investment Behavior:
401(k) plans have
failed to make – 20 Year Investment Return – S&P 500: 8.20%
Wall-Street savvy
investors out of – 20 Year Investment Return – Participant investor: 3.17%
disinterested or
overwhelmed plan
participants • Conflicts of Interest:
– “Educators” or “Enrollers” with duty of loyalty to providers
– Custodians or Administrators determining investment
menus or limiting investment choices:
Too many • Pay-to-Play debacle
“bundled”
solutions disguise • Directed Trade requirements
very real conflicts
of interest that • An intractable mess: an annuity inside a 401(k) . . .
harm both
employers and
– Plan Consultants getting paid to both provide advice to the
employees plan and provide advice to participants
• “Our plan could/should do what?”
– Always behind what could be in plan
• Auto-Enrollment, QACA, Cross-testing, etc.
SOURCES: DALBAR RESEARCH 2010 (PERFORMANCE AS OF
DECEMBER 31, 2009)
12. So what can you do?
• Understand the current 401(k) model IS and why
The only way to
truly have a Better
401(k) is to directly
it doesn’t work
confront the
problems inherent
in the current
401(k) delivery
system
• Evaluate providers and processes with a critical
eye toward what your 401(k) SHOULD BE, not just
continue processes that were inherited
A key metric of
your current
401(k) plan is the
TRUE cost – not
just what you • Ask the 3 Critical Strategic Questions:
spend on fees
and – Why am I doing this?
expenses, but
the total time – Does this help or hurt my business/employees?
and effort
required to
administer and
– Is there a better way to get this done?
oversee the plan
SOURCES: DALBAR RESEARCH 2010 (PERFORMANCE AS OF
DECEMBER 31, 2009)
14. The Retirement Plan Market
1.The Opportunity
2.The Internal Conflict of 401(k) Plans
3.Understand the Points of Entry
4.Why TomorrowsK?
5.Questions
16. Organizational Unity
How TomorrowsK Benefits an Organization
Business Owners
Ultimate Fiduciary
CFO/Treasurer
Human Resources
“The Money Guys”
Logistical Responsibility
Investment Oversight
Tomorrows K
18. RE-EVALUATE YOUR ROLE
DOES RUNNING YOUR OWN 401(k) PLAN MAKE SENSE?
STAFF TIME, COMPANY MONEY & RESOURCES
E VA L U AT E : All are consumed in delivering this employee benefit. From
[verb] : to investment committee and vendor meetings to paying the
determine the TPA, the total cost of running a 401(k) adds up quickly.
significance,
worth, or
condition of, PERSONAL & CORPORATE FIDUCIARY RISK
usually by As the Employer and primary Fiduciary, you are both
careful appraisal corporately and personally liable for Fiduciary actions in
and study
overseeing your 401(k).
AL I G N
EFFORTS WITH LITTLE BENEFIT
SOURCE
Employees primarily evaluate 401(k) plans by asking two
questions: Does it exist? and How much does the
employer contribute? Your efforts in complying with
fiduciary standards developed for Fortune 500 companies
do not normally translate to higher employee appreciation.
COMPLEXITY AND CONFUSION
The next slide illustrates this Plan Sponsor issue . . .
19. WHAT RUNNING A 401(K) PLAN MEANS
Running a 401(k)
plan draws heavily
on your employee
and staff resources
to oversee a
complex investment
service industry
within a web of
ever-changing
regulatory and
legal requirements.
20. EVALUATING THE OPTIONS
YOU HAVE MORE OPTIONS THAN YOU MAY THINK
START WITH STRATEGIC QUESTIONS:
E VA L UAT E - Why am I doing this?
- Is this giving my business a competitive advantage?
ALIGN - Is there a different way to accomplish this?
S O U RCE UNDERSTAND THE VESTED INTERESTS
An entire financial services industry has been created to
deliver “solutions” that leave you legally and financially
responsible for overseeing their products and services.
UNDERSTAND YOUR OPTIONS
ERISA, the federal law regulating retirement plans,
defines specifically how a retirement plan must be
managed. But ERISA doesn’t say you have to be the
one that runs it.
NOW THERE IS A BETTER WAY . . . TomorrowsK.
21. WHAT IS Tomorrows K?
A BETTER WAY TO DELIVER A 401(k) BENEFIT TO EMPLOYEES
MULTIPLE EMPLOYER 401(k) PLAN: A COMPREHENSIVE SOLUTION THAT LETS AN
EMPLOYER JOIN AN EXISTING 401(k) PLAN COMPLETELY RUN BY PROFESSIONALS
E VA L UAT E
• An IRS-approved model in use for over 20 Years
ALIGN • A way for employers to lower the cost of providing a 401(k)
• Aggregation of low value-added services leads to lower costs
S O U RCE
Conventional 401(k)
Cost Items – 401(k) Plan Plan (Average) TomorrowsK
Set-up Fee (One-Time) $500 - $3,500 $600
TPA Charges/Admin Charges $700 - $3,000 $400
ERISA Bonding $100 - $300 Covered
Annual Audit (if required: >100 EEs) $4,000 - $14,000 Covered
Fiduciary Liability Insurance $1,200 - $7,500 Covered
Total Annual Cost $2,000 - $20,000 $400
22. WHY TomorrowsK IS BETTER FOR YOUR BUSINESS
ALIGN YOUR NEEDS WITH STAFF AND EMPLOYEE RESOURCES
ADMINISTRATIVE WORK LOAD
E VA L UAT E Your human resource staff will not be
burdened signing off on various distributions
from the plan and coordinating the various
ALIGN [verb] :
vendors to administer your 401(k).
to be or come
into precise
a d j u st m e n t o r OUT-OF-POCKET COSTS
correct relative Lower the administrative cost of doing
position business while still providing employees a
valuable benefit they desire.
S O U RCE
ON-THE-CLOCK EMPLOYEE TIME
If your employees want to learn about
diversification, risk allocation andtinker with
their investment mix, they can do it in the
privacy of their home or with other interested
parties. Eliminate on-site enrollment and
“education” meetings that burn time and add
little value to your 401(k) plan.
23. A PROVEN SOLUTION
WHO ADMINISTERS TomorrowsK?
PLAN CUSTODIAN
E VAL U AT E
TomorrowsK Retirement Plan investments are held at TD Ameritrade, a retirement plan custodian with over $13 Billion in
401(k) assets and one of the most respected plan custodians for their technology, integrityand transparency.
AL I G N
RECORDKEEPER/THIRD PARTY ADMINISTRATOR
SOURCE
[noun]: a point
of origin or 401(k) Plan Administration is provided by Capital Services, a specialized Multiple Employer Retirement Plan administrator
procurement founded in 1997. Capital Services provides plan administration to over 2,000 corporate retirement plans with over $1.2
Billion in assets.
PLAN SPONSOR
Allen Plan Administrators (APA) is the Plan Sponsor for TomorrowsK. Founded by a former broker-dealer chief
compliance officer and human resource consultant, APA focuses solely on Retirement Plan Sponsor services.
PLAN FIDUCIARY
The Employer’s Fiduciary Solution (EFS) provides Fiduciary consulting to large and small employers. EFS serves as
Principal Fiduciaries on the plan and are responsible for both investment and operational oversight of TomorrowsK. EFS
was founded by Matthew Fields, Registered Investment Advisor, CPA, Attorney, and MBA.
24. EMPLOYER DUTIES WHEN USING
TomorrowsK
• Moving the Plan
Sponsorship streamlines
401(k) operations for you
as an employer.
• As a Co-Adopting
employer, you can still
choose your own
contribution scheme
• TomorrowsK assists with
continuing non-
discrimination
compliance.
As a Co-Adopting Employer:
•Remove 90% of the administrative workload from internal staff
•Shift plan management and legal compliance to TomorrowsK
•Retire from your duties as a Plan Sponsor
25. RE-SOURCE YOUR RESPONSIBILITIES
REALIZE THE MULTIPLE BENEFITS OF SOURCING YOUR
PLAN WITH TomorrowsK
E VA L UAT E • ELIMINATE ANNUAL PLAN AUDITS
ALIGN
• ELIMINATE ANNUAL FORM 55OO FILINGS
• SHIFT FIDUCIARY LIABILITY TO PLAN PROVIDERS
S O U RCE [ n o u n ] : • ELIMINATE PLAN DOCUMENT CHARGES
a point of origin
or procurement • ELIMINATE ERISA FIDELITY BOND CHARGES
• HAVE PIECE OF MIND FROM KNOWING A
PROFESSIONAL FIDUCIARY INVESTMENT
MANAGER IS RUNNING YOUR PLAN
• REDUCE WASTE AND DELIVER A GREEN 401(K)
PROGRAM
FIND OUT MORE AT TomorrowsK.COM
28. Your Title Text Here – Steps
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industry.
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31. Payroll Providers and 401(k)s
1.ADP, Paychex, Ceridian
a. Integrated Service Model
b. Predominately Traditional 401k due to
Plan Administration Revenue
2. Independent Payroll Providers
a. Un-integrated referral relationships
b. Traditional 401(k) Plan Integration
c. Multiple Employer Plan
32. Integration Example: Paychex
• Integrated Retirement
Plan Administration
Services with Payroll
• 2011: Paychex
becomes largest 401(k)
provider by both
number of total 401(k)
plans and new plans
• 2011: Number 30 on
Business Insurance Top
100 List; Oswald is
Number 54
33. MEP Market Dynamics
1.Multiple Employer Plans make up 5.4% of all
Retirement Plans ($169 Billion in Total Assets
with 3.2 Million Employee-Participants).
2.Best Estimate: Over 80% of all Multiple
Employer Plan assets held by Insurance-
Company based programs