2016 – Fiduciary and Other 401k Considerations for the New Year
By John Friar, AIF, Financial Consultant, Director of Corporate Retirement Plans, Hausmann-Johnson Bauch Financial, LLC
If you have read my blogs over the past year, retirement readiness has been a common and often repeated phrase of 2015! Well, move over “retirement readiness,” and let’s get ready for the often controversial and confusing term of “Fiduciary” to dominate the retirement plan landscape in 2016.
I will assume that most of you may not have heard of the proposed Department of Labor (DOL) Fiduciary Rule legislation set to take place in 2016. There has been a dog fight between the DOL and the financial services industry as to the definition of who is a fiduciary. Without getting into the weeds of this proposed rule, which could be never ending, it’s important for those of you who manage qualified retirement plans to have a conversation with your advisor in 2016 on how they are positioned to deal with this potential rule change. Ask how this rule change affects your business, and is your advisor able to be a fiduciary.
Rather than spending the rest of our time sifting through the legalities of the proposed fiduciary rule change, (although I think that would be a good thing to do with your plan’s advisor) let’s look to some key trends in 2016:
Target Date Fund Awareness:
With the rise in popularity of target date retirement fund options (TDF’s), plan sponsors are increasingly expected to become more informed about their TDF selection. There are considerable differences among TDFs offered by different providers such as: investment strategies, active or passive, glide paths, and investment related fees. In 2016 make sure you understand exactly how your TDFs operate and the choices available to you.
Focus on the Fiduciary:
As we discussed above, there will most likely be changes in the fiduciary requirements that investment advisors need to adhere to, so it will be important to ensure that your advisor and his/her firm are prepared to meet these changes when and if they occur.
In February 2012, the Department of Labor published rules and regulations on fee disclosure for retirement plans governed by ERISA. These changes have had a huge impact on transparency of fees. But even as I speak today, many plan sponsors are still unable to truly understand the fees being paid. There are four general fees associated with retirement plans and they are: Third Party Administration, Advisor fees, mutual fund/investment fees, and recordkeeping fees. Even in 2016, it’s still important to understand and be able to identify these fees.
With all of that said, here is to all of us having a safe and prosperous 2016. There are changes ahead, but if you ask questions and work with good partners, these changes will ultimately help drive better retirement results and decisions for all.