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401k Retirement Plan Fees Under Pressure

401k Retirement Plan Fees Under Pressure

401k Retirement plan fees are difficult to comprehend.  Understanding the nuances around fees and expenses within 401k plans is no easy task for plan fiduciaries and active plan participants.  At the conclusion of a TPSU program which was held at the location of University of Pennsylvania in Philadelphia, Pennsylvania, Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU), met with TPSU Adjunct Lecturer, Tim Dougherty.  Tim installed his first 401k plan in 1987 and he keeps a close eye on 401k retirement plan fees!

Tim works hard to educate plan sponsors and plan participants to help each of those groups understand what they are paying in retirement plan and investment related fees.  During his conversation with Fred, Tim referenced the landmark court cases and the excessive fees that the courts frequently uncover.

Full Transcript Here

Fred Barstein:
Fred Barstein with 401k TV from downtown Philadelphia, just completed a TPSU with our steam adjunct lecturer, Tim [Daugherty 00:00:00:17], welcome Tim.

Tim:
Thank you Fred.

Fred Barstein:
Okay if we ask you a few questions here?

Tim:
Absolutely. We will do cheese steaks with, not without.

Fred Barstein:
With or without. Yeah. Either one is going to make me feel sick, so I got to be careful how we do that. I got to travel today. So Tim has been with us as a lecturer since the beginning of TPSU 2013. This is his 13th program. He’s been a financial advisor since 1986 and he sold his first plan in, what year?

Tim:
1987.

Fred Barstein:
1987.

Tim:
32 Years.

Fred Barstein:
32 years in the 401k business. Pretty soon you’ll actually figure out what to do right?

Tim:
When I grow up.

Fred Barstein:
So Tim, in the class today we talked, we got a lot of questions about benchmarking and fees and how they do it. So what do you do with your clients?

Tim:
Well, just to reflect it back to today’s session, we talked a little bit about some of the big issues that confront plan sponsors and where their liabilities have been in some of the big landmark cases. And one of those repeating themes was excessive fees or not having the lowest cost share classes, et cetera. And so whether it’s here today where you discover that folks do need more help with that or whether it’s with our own clients, we insist on providing that help with our clients. And so that takes us into benchmarking those fees. It’s an important exercise to do and we do it on an annual basis, but there are different layers and ways in which it should be done at different times.

Fred Barstein:
Right. And you made a very generous offer to people, and what was that?

Tim:
Well, just that we have access to multiple different ways to benchmark. Now if we’re going to do a full RFP live bid, that’s a significant engagement. But to help someone where we would otherwise charge a reasonable fee, for their attendance here at TPSU, we were willing to provide access to a benchmark that gives us sort of like a compensation survey database. It’s like a 105,000 plan database from Castle Rock, and that firm does about 105,000 408(b)(2)s, and the byproduct of all-

Fred Barstein:
What is 408(b)(2)?

Tim:
You did have to go there, didn’t you? Well that would be that effective, was it I believe July 1st or June 30th of 2012, each plan sponsor was required to receive a 408(b)(2) which is a code section fee disclosure, which is a required plan sponsor fee disclosure.

Fred Barstein:
To do the benchmarking do you need that 408(b)(2) from your client?

Tim:
It is absolutely necessary. We pull the important information from that document. That is legal fee disclosure. However, to really streamline, there are some fees you can pick up off of a 404(a)(5) that you might not be able to find on a 408(b)(2) believe it or not. So we like to get both documents.

Fred Barstein:
What is 404(a)(5)?

Tim:
That’s the participant fee disclosure. So if we get those two documents and the list of funds with the amount of the asset in each fund, we can load that into a database and very easily come back to a plan sponsor benchmarking what their current costs are for the investments and for the advisor in total relative to an access universe that’s relatively narrow to a firm that has assets like them and employees like them.

Fred Barstein:
To see on that. So four 404(a)(5) and 408(b)(2) is sort of like with and without?

Tim:
There you go. We just went full circle.

Fred Barstein:
And good, we just came back. Well great. So that was a very generous offer. I’m sure that you don’t make it to everyone, but maybe for 401k TV subscribers could get you to do that for them.

Tim:
If there was someone listening today who would like to benefit from our ability to provide a benchmark using this product service, we would be happy to help. Yes.

Fred Barstein:
And it’s Tim Daugherty and your new name is Financial Guide LLC.

Tim:
That’s correct. Well, I’m part of-

Fred Barstein:
That is a catchy name. LLC.

Tim:
Well, we’re part of the Mass Mutual Financial Group as advisors and all financial advisors at Mass Mutual have the financialguide.com suffix on their email address. I happened to be the guy with the financialguide.com website.

Fred Barstein:
The financialguide.com website. Very good. Well you served your first plan in ’87, you deserve it. Well, thanks Tim for your time today and thanks for supporting TPSU.

Tim:
Thank you Fred. It’s a pleasure.

Fred Barstein:
Always appreciated and thank you for watching 401k TV. Please stay tuned.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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