The Myth of the Year-End Conversion

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Here we are already in the middle of the third quarter; prime time for starting planning and projections for next year. If you are a member of your company’s investment or benefits committee that may mean you are considering making a provider change for 2018. And, chances are if you are considering making a change, you have an advisor urging you to make a decision now in order to get that change accomplished on January 1, 2018. However, as a former employee of a recordkeeper, let me encourage you to think twice about falling into the myth of the year-end conversion.

Back in the days of paper records and/or massive Excel spreadsheets, there was a necessity to transfer data at the end of a plan or calendar year in order to have a “fresh” start for the next year. That is not necessarily the case any longer. With the seamless, electronic transmission of records and the electronic retention of participant records, there is not the same sense of urgency to have the plan established at the new provider on the first day of the new year. Third party administrators, recordkeepers, and auditors are all more than capable of getting the information they need to perform their job functions from multiple sources. Granted there may be a little additional work required if gathering data from more than one source, but with the level of technology available to them, there should not be an issue.

One could even argue that a January 1 conversion could be the worst time to try to push your plan through a conversion since there is a sizeable number of 401(k) plans that are trying to do just that. Of course, that’s not to say that recordkeepers are not well equipped to handle an influx of new clients, but think about your own business. Isn’t there a great opportunity for mistakes or errors to happen when there is a higher volume of work to be done?

Another point to consider when aiming for a year-end conversion is that more than likely the “blackout period,” the amount of time that your participants will not be able to access their money for distributions including loans, will more than likely fall in or around the holiday season. There may need to be additional education for your employees to ensure they understand their ability to get to their money will be limited during the prime spending season.

Finally, reflect on the amount of additional work that your team who handles your 401(k) plan has at the end of the year. Chances are the same individuals at your company who are responsible for running the 401(k) plan are also preparing profit and loss statements, gathering information for year-end payroll, and handling a variety of other tasks that present themselves as the year draws to a close.

While there is no right or wrong answer to whether or not a year-end conversion is right for your plan, I would encourage you not to fall for the myth that you have to convert the plan on January 1. If you would like to discuss this matter further, please contact me at or 205-970-9088.

Five Tips a Retirement Plan Adviser Wants You to Know

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Recently, my partner Caleb Bagwell and I had the opportunity to speak to a group of Human Resource professionals about how to leverage strategic partnerships. In preparing for the presentation, I was surprised about the lack of information on how to best work with professionals you hire to perform a function for your business; i.e. best practices for working with a CPA or top tips for getting the most out of your relationship with a benefit’s adviser. So, in the spirit of not bringing up an issue without a providing a solution, here are five things that I want you to know when working with a retirement plan advisor.

1. Ask Questions – I love the ins and outs of plan design, compliance testing, and investment analytics and strive to make the details of these complicated topics as relatable and understandable as possible, but that can be difficult. Therefore, I encourage the plan sponsors that I work with and you to ask questions when you don’t understand a topic. The 401(k) plan is designed to be a benefit for you and your employees and it is imperative that you understand how it works and works for you.

2. Don’t Accept the Status Quo – I cannot tell you the number of times I’ve heard, “We’ve always done it that way.” While the old way may have worked and may still be working, there have been significant advances in plan design and participant value-adds that your plan may want to take advantage of. Your retirement plan advisor should want the best results for your plan and “the old way” should not be an excuse not explore alternative plan designs, analyze your current investment menu, or demand better a better participant experience.

3. Read the Darn Document – When I first heard this mantra, there was a stronger adjective used, but you get the idea. Why this is so important is that the plan document is the instruction manual for the plan and following it is critically important to the operation of the plan.  While it seems intuitive that the plan providers would be following the document, that is not always the case. Furthermore, the consequences for not correctly following it can be anything from fines to total plan disqualification.

4. Be Engaged – You know your people better than anyone else, so be engaged and let your plan adviser know what works and what doesn’t. For example, several plan providers have introduced state-of-the-art website technology, but if your employees are not computer savvy and/or prefer live interaction or attentive call center representatives, speak up and let your advisor know what is most effective for you and your team.

5. Take Your Plan Off the Back Burner – The stock market as a whole has been on an upward trend for the last several years and most everyone has benefited in their investment accounts. While I am certainly not complaining about this, it has led to 401(k) plans being placed lower on the priority list because everything appears to be going well. However, just because no one is complaining, does not necessarily mean nothing is wrong. Your plan may be in need of a fee review, investment review, or retirement readiness assessment and none of those things are going to happen if no one is paying attention to the plan.

If you would like additional insight on how to best work with a qualified retirement plan adviser, please contact me at or by phone, 205-970-9088.

10 Attributes of a Retirement Plan Advisor

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There are a number of advisors to choose from when it comes to providing advice for your company’s retirement plan. There are advisors that manage personal money, provide other benefit services, are best friends with the owner, specialize in qualified retirement plans, or if you are lucky some combination of those attributes. Our firm specializes in qualified retirement plans and is partnered with the Retirement Plan Advisory Group (RPAG) to offer investment analytics, plan design reviews, and enhance participant outcomes. RPAG also assists us with offering services that satisfy ERISA’s strict standards. Here are some guidelines from RPAG that can help you select a retirement plan advisor.

Attributes of a Good Advisor Why You Should Hire One
Independence Ability to help evaluate funds and providers objectively and without conflict of interest
Familiarity with ERISA Ability to keep the committee updated on litigation, legislation and regulations impacting plans and fiduciaries
Prudent Expert ERISA section 404(a) requires fiduciaries to act with the skill, knowledge and expertise of a prudent expert
Expertise with Plan Design Ability to help plans maintain qualified status while continuing to meet the goals and objectives of our organization
Knowledge of the Provider Marketplace Ability to ensure that our plan is being administered in the most efficient manner and for a reasonable price
Qualified Plan Investment Expertise Ability to evaluate, select and monitor fund performance
Documentation Skills Ability to demonstrate procedural prudence in a well-documented manner
Communication Skills Ability to educate employees regarding plan highlights and how to create an appropriate investment strategy
Acceptance of Role as a Co-Fiduciary Willingness to acknowledge in writing that they’re a co-fiduciary to our plan with respect to the investment advice being delivered
Full and Open Disclosure Fully and openly discloses all sources of fees being received on a direct and/or indirect basis

If you would like to learn more about how we fulfill these qualifications, please contact me at 205-970-9088 or


Automatic Enrollment Myths

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In Vanguard’s “How America Saves 2017” report, they cited a 300% increase in plans offering automatic enrollment since year-end 2007!  If your plan is considering adopting the automatic enrollment provision, here are some common myths you should address.

  1. 6% is too high to start the deferrals
    The fear that most plan sponsors have with starting automatic enrollment at an amount over the commonly accepted 3% is that the amendment will be met with ill will from the employees and/or the amount will be too much for the employees to afford. However, research has shown the opposite of that to be true. According to the 2014 PLANSPONSOR Defined Contribution survey, plans with a 5-6% default deferral rate have a 90% participation rate which is 13% higher than the national average.
  2. My participants will be ready to retire
    Even though 3% is better than nothing, it will not get your participants ready to retire if it is the only form of savings they take advantage of. It may be worthwhile to take a look at adding an auto-escalate provision which would increase deferral percentages up to a certain number. For instance, the provision could read “every January 1st, all automatically enrolled participants deferral percentages increase by 1% until a 10% deferral percentage is achieved.”
  3. It will immediately help annual compliance testing
    More than likely only automatically enrolling newly hired employees will not have a significant impact on your plan’s annual compliance testing since it does nothing to address the employees that are not currently participating. With that in mind, your plan may want to consider including all eligible employees in the automatic enrollment which may have a more immediate positive impact.
  4. It costs nothing
    While it is true there may only be a nominal document amendment fee to add the automatic enrollment provision, a company that offers a match needs to consider what an increase in participation will do to the company match commitment.

Automatic enrollment is here and gaining popularity and, in most cases, is a great addition to a company’s 401(k) plan as long as you completely understand what it is and isn’t before making the change. If you would like to discuss the potential impact that auto-enroll would have on your plan, please call me at 205-970-9088 or email me at


Share Class Warfare

Concept of business competition.

As Nevin Adams on wrote about a few weeks ago in his article “Excessive Fee Suit Comes From a New Direction,” an excessive fee lawsuit was filed in Colorado on behalf of a participant whose company 401(k) plan’s recordkeeper and investment platform was Vanguard Group Inc. Yes, you read that correctly, Vanguard. For those of you who know a bit about investing, Vanguard is almost synonymous with low cost. So how is it that they found themselves the defendants in a fee lawsuit? It all comes down to share class.

Share class questions

In the 401(k) world of investing there are often one or two letters or numbers that follow the name of the investments that are meant to distinguish the internal expenses of the investment. They include (but are not limited to) all of the following: A, I, K, Y, R1, R2, R3, R4, R5, R6, Z, Adm, Instl, and Srv. Confused? Of course you are because it is confusing and pretty much meaningless to the average investor. A, for instance, typically indicates that the investment will pay the investment adviser a commission of 0.25%; whereas, R6 usually has no commissions built into the investment. To add to the confusion, there are also internal investment expenses that compensate the recordkeepers for maintaining participant records. In the case of the Vanguard complaint, the plaintiff claims he was overcharged because there were lower cost share class options available for the same investment. This is very common; where the same investment has multiple share classes all with different internal expenses and therefore different total expense ratios.

Why does it matter?

The simplest reason for why it matters is that every dollar you and your plan participants pay in fees and/or expenses is one less dollar that goes to retirement savings. Why regulators and attorneys care is much more complex. It has been common practice for plan advisors and plan providers to use the internal investment fees to completely pay for or to subsidize the cost of providing advice or administrative services to the plan; creating what the industry sold as a “free plan” or one where there was not a billable expense to the plan sponsor because all fees were covered by the investment revenue sharing. This is not necessarily wrong or a bad practice and in some cases it can be shown that it actually creates a lower overall cost to the plan to use investments that carry a higher expense ratio, but completely pay for plan expenses. However, this approach carries with it the potential for confusion and complaints for a couple of reasons. First, as plan assets grow the cost to operate the plan will also increase as much if not more right along with it. As noted in the Vanguard complaint, the plaintiff’s attorney claims that between 2012 and 2015 plan assets increased by 40.5%, but the direct compensation paid to Vanguard more than doubled. Second, the fact of the matter is that if your plan is using a share class that has internal fees, there is a chance there are lower cost investment options out there and the trend in the market today is to use those lower cost options. In many cases, the same investment will have multiple share classes and your plan may be able to keep the same investments and just change the share class.

What to do from here?

Document, document, document! Again, it is not necessarily wrong to use the investments with the built-in fees, but your plan needs to be able to show why those investments were selected and how they were monitored. Additionally, challenge your plan providers to investigate whether it would be more cost efficient to use a non-revenue sharing investment and bill for their fees. The common misconception with billable fees is that it is going to be a cost to the company, but in reality the billable fees can be paid in much the same way as revenue sharing was done, through participant accounts. Also, when you have a better understanding of what everyone is being paid, there may be a better opportunity to negotiate fees.

If you would like to discuss how share classes may affect your plan, please give me a call at 205-970-9088 or email me at


Three Potential Unintended Consequences of the DOL Fiduciary Rule

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It’s official! As of June 9, 2017, the Department of Labor Fiduciary Rule, as was written into law in April 2016, started its initial applicability phase with a final enforcement date of January 1, 2018. Quite honestly, to this point the DOL rule has mostly been a “monster in the closet” for financial services professionals; we have been unsure of exactly what to do, how to do it, and who will be on the hook for it. What is becoming more clear is that there may be a large number of advisors who chose to run away from the business completely rather than to adjust and adapt to the new regulations. If that happens, then it is estimated that we may see the financial advisor industry cut in half. If you are a non-advisor reading this you probably are asking yourself “what’s the big deal if a few financial advisors lose their jobs?” Here are three unintended consequences that plan sponsors should be aware of in the coming months.

  1. It may become more difficult to roll money out of the 401(k) plan                      The traditional advisor model for accepting 401(k) rollovers under a certain monetary threshold, $100,000 for instance, has been to use investment products that pay an upfront commission and trails through the investment product itself. This business model will no longer be allowed in retirement accounts, like rollover IRAs. Therefore, I believe it is going to be increasing difficult for participants to find financial advisors that are willing to work with “small” retirement accounts – there is too much risk and not enough reward for the advisor. The participant will still be able to rollover his account into a brokerage account that he will manage, but without the encouragement of an advisor this may be unlikely to happen. As a plan sponsor or other fiduciary to the plan, you remain responsible for all participants in the plan, even if they are terminated, which means you must keep sending those terminated participants with a balance in your plan all of the same notices you would a currently employed participant. Furthermore, plan sponsors need to place increased importance on making sure that the investments in the plan meet the needs of all participants, including the terminated with balances.
  2. Participant education may look different                                                                There is a thin line of distinction between participant advice and participant education drawn out in the Fiduciary Rule. If the advisor offers education, there is no fiduciary relationship created; however, offer advice and the advisor is now a fiduciary to that specific participant or group of participants that the advice was rendered to. Again, this blurred line can put advisors in an uncomfortable position of wanting to help participants without taking on undue liability. Plan providers are also caught in this crosshair. In fact, Fidelity, the largest record keeper of defined contribution plans, has taken the drastic step of making their call center representatives fiduciaries to plan participants in some cases. More than likely this continued focus may lead some advisors to stop offering participant education all together while some plan providers may start to offer more comprehensive participant advice.
  3. You may be forced to change advisors                                                                         With the potential shrinking of the number of financial advisors in the business, your plan may find that you are forced to change advisors. Additionally, some broker-dealers are becoming more restrictive in the type of professional that they allow to work on retirement plans. For instance, a broker-dealer may require their advisors who work on retirement plans to earn certain industry designations that reinforce the advisor’s ability to serve in a fiduciary capacity. The Accredit Investment Fiduciary® (AIF®) offered through FI360 and the Certified Plan Fiduciary Advisor (CPFA) offered through the National Association of Plan Advisors (NAPA) are just a few such designations. In any case, it is critical that the plan sponsor understands their advisor’s qualifications.

If you are unsure if any of these unintended consequences may impact your plan, please give me a call at 205-970-9088 or send me an email at     

Does Your Company’s Retirement Plan Need a Check-Up?

Medicine money image.jpgI recently attended the 2017 National Association of Plan Advisors (NAPA) Conference that brought together industry thought leaders and retirement plan advisors to discuss the latest industry trends, regulations, and best practices. In the session, “What Plan Sponsors Really Want,” we reviewed a recent survey conducted by NAPA and The Plan Sponsor University (TPSU). According to the survey, 53% of respondents indicated they are overall satisfied with their plan advisor. I think most of my readers would agree that is a meh number; not great, not bad. However, Fred Barstein, founder and CEO of The Retirement Advisor University and TPSU, was quick to point out that “plan sponsors don’t even know what it means to be satisfied.” That statement got me thinking, “how do you measure satisfaction when you don’t know what it means to be satisfied in first place?” To answer this question, I thought maybe we could compare the services of plan advisors to that of your family physician.

  1. You Should Be Able to Clearly and Quickly Define What Your Advisor Does for You and Your Plan Participants

When asked what your family physician does, you probably quickly said check my vitals (blood pressure, temperature, weight), assess my symptoms, provide a diagnosis, and prescribe a course of treatment. Can’t answer this question about your plan advisor? You’re not alone. In many of the sessions, it was revealed that plan sponsors believe plan advisors are only there to provide guidance regarding the investments in the plan (and some plan sponsors aren’t even sure if their advisor does that). It is my belief that your plan advisor should be able to not only provide advice on the plan investments, but also should be able to provide plan design and compliance support, vendor management, and participant education.

2. Your Advisor Should Be a Thought Leader

You wouldn’t visit a doctor that didn’t have a medical license and proper credentials, so why would you work with an advisor that doesn’t have the proper credentials? With so much changing in the retirement plan industry, such as the definition of a fiduciary, acceptable compensation forms, and fee scrutiny, your advisor should be able to demonstrate that she is a thought leader by understanding the rules and regulations, but also being able to explain them to you and your participants in an understandable way. One way that your advisor can demonstrate her level of knowledge is through industry recognized designations, such as the Certified Plan Fiduciary Advisor (CPFA), Accredited Investment Fiduciary® (AIF), and Certified 401(k) Professional® (C(k)P), just to name a few.

  1. Your Advisor Should Follow a Process

Your doctor probably does not walk in straight away and write you a prescription. And, if she did, would you take it? Similarly, your advisor should not make investment changes to your plan without first understanding your participant demographics, company philosophy, and plan structure. Additionally, there needs to be a documented process in place for when investment changes are made. I recommend a written Investment Policy Statement (IPS), consistent investment monitoring reports, and meeting minute notes as forms of documentation for your plan’s processes and procedures.

With company retirement plans, there is often the “if it’s not broke, don’t fix it” mentality when it comes to analyzing the plan. However, my question is again, “how do you know if it is broken, if it never was working correctly in the first place?” If you would like a check-up of your company’s retirement plan, please give me a call at 205.970.9088 or e-mail me at I would be happy to help you.

Three Things You Need to Know About Your 401(k) Fees

Fees image.jpgFees have always been a four-letter word. No one likes them or wants to talk about them, but how they are calculated, the method in which they are paid, and how you determine they are reasonable have been thrust into the spotlight due to the upcoming (although delayed) Department of Labor fiduciary rule.

  1. Fee Levelization – Fee levelization is the new, fancy industry term for the averaging of fees within a 401(k) plan. To explain, the investments that are a part of a 401(k) plan can pay fees to the plan adviser, third party administrator, and recordkeeper. The fees are used to keep billable expenses to the plan low or nonexistent. The problem is that each investment may pay a different amount to each party involved and therefore, the investors in the funds that pay more to each party may pay more for their investments than investors in the lower fee paying investments. Fee levelization, or the averaging of fees, aims to correct this issue by taking the average fees of all the investments and charging each individual participant in the plan that average fee, rather than each individual investment paying the fees.
  2. Invoicing vs. Plan Assets – By far the most commonplace practice for collecting fees for plan administration and recordkeeping has been to receive compensation from the investments, as discussed above, and then to collect any outstanding amount from the plan assets in a pro rata manner. This avoids an actual bill being sent to the plan sponsor. However, when fees are taken from plan assets, participant retirement balances are being used to pay the fees. If the company can afford to pay the plan fees outside of the plan investments, the fee payments may be considered for a business tax deduction. Please make sure to consult with your tax professional for the specific effect on your taxes.
  3. Reasonableness of Fees – There have been a handful of recent legal cases that have addressed the appropriateness of fees in retirement plans and for the most part, they have all determined that your plan does not have to be paying the lowest fees, but the most reasonable fees. Also, keep in mind there is a fiduciary responsibility to monitor fees. In order to prove reasonableness and that your plan has a handle on fees, there needs to be documentation of how the fees were determined, what services the plan received for the fees, and that they continue to be reasonable. One way to document that your plan has reasonable fees is by having a Fee Policy Statement. Fee Policy Statements lay out what fees are being paid, to whom, and for what.

If you think that your plan would benefit from a clearer understanding of what fees you are paying and if they are in fact reasonable, please let me know. I’d be honored to help.

Three Things You Need to Know When Hiring a 401(k) Adviser

401-k-advisor-image“Remember upon the conduct of each depends the fate of all.” – Alexander the Great

As a Human Resources Professional, C-level executive, or team leader, you depend on those around you to give their best, as you give your best to them. At the start of this new year, maybe it is time to ask yourself if you are demanding that same level of quality from the professionals you hire outside your company walls. That highest level of professionalism is especially important when hiring an adviser to manage your company’s 401(k) plan. With increased scrutiny on fiduciary responsibility and the roles that each professional plays in the management of the plan, here are three things to consider when hiring or evaluating your 401(k) adviser.

  1. Is your adviser focused on 401(k)s?

“Jack of all trades, master of none” comes to mind when thinking of a financial adviser who does not focus on one specific area of expertise. While there is nothing to say that an adviser cannot be good at multiple financial disciplines, when it comes to managing 401(k) plans it is imperative that your adviser know enough to stay on top of changing regulations and best practices. Aside from the fiduciary focus, there is also renewed attention on target dates and how they are selected and monitored. Your adviser should understand these rules and be able to document how your plan is addressing them. Additionally, review your adviser’s qualifications and designations looking for industry designations that specifically address their fiduciary knowledge.

  1. Is your adviser on a team or a sole practitioner?

There is not a right or wrong answer to this question, rather something to consider as a best fit for your plan. I work on a team and cannot imagine trying to go it alone and properly manage all of the responsibilities to the plan, the plan committee, and the participants. On my team, I focus on the analytical, detailed, “left-brain” tasks and my partner focuses on educating the plan participants and keeping the message relatable. Additionally, we have found that when working with committees there are times when my style and personality work well with some committee members and times where his is a better fit.

  1. How is your adviser compensated?

This is especially important to know ahead of the April 1, 2017, start date of the new fiduciary rules. It will be more difficult for your adviser to be compensated if he or she is receiving commissions from the investments in the plan. A commission is a fixed amount paid out to an adviser from an investment that is included in the cost of the investment and does not have to be paid separately or approved by the plan sponsor. The other way an adviser is compensated is to charge a fee to the plan. This fee can be in the form of an asset based charge, usually represented as a percentage, or as a flat fee. Typically, the fee is fully disclosed, is not paid by the investments, and can either be paid by the plan sponsor or passed on to participant accounts.

If you are unsure of the answers to any of the questions above, please reach out to me at or 205.970.9088 and I’ll be happy to get you some answers!

A Quick Guide to Understanding Fiduciary Definitions

fiduciary-duty-imageAs it stands today, the Department of  Labor’s (DOL) Fiduciary Conflicts of Interest Rule is set to take effect on April 10, 2017. As with most new rules or regulations, there are a lot rumors and speculation surrounding how the rule will be applied and who will be impacted. If you are a plan sponsor of a qualified retirement plan, like a 401(k), then now is the time to educate yourself as to who is working with the plan and how his or her role will be impacted by this rule. Here are the definitions of some commonly used terms that are associated with the rule.

Glossary of Terms: DOL Fiduciary Rule

Best Interest Contract Exemption
This provision of the DOL rule requires an advisor to enter into a written agreement with a client before advising him or her and receiving commission-based compensation. The agreement should confirm the advisor will act in the client’s best interest and disclose any conflicts of interest that may exist.

This type of compensation pays a percentage of a product sold on each transaction. Trails are a form of recurring commission that pays a stated percentage annually for a sale made in the past.

Department of Labor (DOL)
The United States DOL oversees services and advice provided to retirement accounts, and it is one of the agencies responsible for enforcing ERISA. The DOL has proposed this revised fiduciary rule with the goal of expanding protection for clients’ retirement assets.

Employee Retirement Income Security Act of 1974 (ERISA)
ERISA regulates and protects retirement assets by establishing rules that plan fiduciaries must follow.

In fee-based accounts, advisors charge a management fee based on the amount of assets. The opposite form of compensation would be transaction based, such as commissions.

In qualified retirement plans, advisors charge a fee for services provided. The fee may be based on a percentage of plan assets or a flat fee.

ERISA defines “fiduciary” as anyone who exercises discretionary authority or control over a retirement plan’s assets or provides investment advice to a plan. Fiduciaries are held to a higher standard of accountability than are brokers, and they are required by law to act in the best interest of their clients. The DOL rule seeks to expand the definition of fiduciary to anyone providing advice on retirement plans.

A suitability standard requires advisors to reasonably believe their recommendation will meet a client’s needs, given the client’s financial situation and risk tolerance. This standard is not as strict as a fiduciary standard.

If you are feeling a bit overwhelmed or confused by what is involved, you are not alone and we are here to help. Please contact me at or 205.970.9088 to learn more.