At a TPSU program held at Valparaiso University conducted by Lakeside Wealth Management Group, Do-Rite Die & Engineering, a small family owned business in Indiana took decisive action to help their employees get ready for retirement while lowering fees and likely insulating themselves from the rash of 401(k) lawsuits. How did they do it?
Concerned about high fees that the company saw their employees paying in their 401(k) plan, they decided to take matters into their own hands. Though the company ended up paying a little more, they negotiated a flat fee arrangement with their provider and advisor which the company paid directly so that employees only pay the fees for managing the money. To keep fees even lower, they included index funds for participants to choose from. In the end, the small plan got institutional share class pricing which only larger plans have access to.
By paying plan expenses directly, Do-Rite improved their employees’ chances for a successful retirement as more of their contributions ended up in their accounts rather than paying for higher priced funds. They avoided all the issues surrounding revenue sharing and which share class they could get which is a big underlying cause of many of the recent 401(k) lawsuits which will be discussed at TPSU’s Master Class “Rash of 401(k) Lawsuits – Navigating Dangerous Waters” to be aired on 401kTV March 9th 4:00 ET. Additionally, a flat fee arrangement is based on the work being performed compared to the much more popular asset based scheme where fees go up or down based on the assets in the plan. Some lawsuits have pointed to the unfairness of the fee based arrangement, especially in bull markets.
And though Do-Rite did have to write a check, the fees are tax deductible, they end up with a 401(k) plan which puts their participants in a better position to retire along with a lot of good will from employees who appreciate their employer looking out for them. Even if plan sponsors do not want to pay expenses directly, they should ask about flat fee v. asset based pricing – good providers and advisors are more than willing to work under this arrangement.
