In addition to my usual efforts of planning successful real estate development programs, I am often asked to give legal advice for organizational risk management strategy sessions. Recently, I was asked to investigate the cause for sustained losses to an employee’s 401(k) plan. The obvious response was the economy, but on closer evaluation, it appeared that a substantial portion of the losses occurred for reasons other than the market decline. I requested a review of the company’s plan information, including the Agreement with the Plan Provider. I discovered that the source of the losses were not entirely attributable to market conditions and thus, called an expert for help.
John Sullivan, of Sullivan Capital Management, is an expert in investment strategies and was not surprised to receive my call. He said “The state of 401(k) and 403(b) is deplorable.” Sullivan said that he is contacted regularly by companies of all sizes to perform an analysis of their plans. Most of his clients are shocked to learn that their 401(k) contributions are being eaten away by high, hidden fees. In his experience, Sullivan noted that “most CEOs, CFOs, and Human Resource personnel do not know plan participants are being slugged with fees that guarantee they will not have enough money for a decent retirement.” In his opinion, the money taken through these non-disclosed fees goes into the pockets of insurance companies where there is no value to the participants. In sumary, hidden revenue sharing and brokerage fees charged by 401(k) providers can deplete the long term value of an employee’s nestegg by more than 50%. Officers of a company who sponsor a 401(k) plan can be held personally liable for mismanaging the plan and mismanagement may be found where excessive fees exist. Legislation is prepared to put the blame where the fiduciary responsibility lies, with the employer. Allowing high fees, although hidden, makes a company vulnerable to being sued by an employee who feels the plan was stacked against them. Sullivan reports that Plan Providers have creative ways of charging fees, and to date, has found as many as 13 different fee categories that are actively depleting employee savings.
Employers the message is clear: IGNORANCE IS NOT BLISS. Accept your fiduciary responsibility and have your plan evaluated for hidden fees. Challenges can successfully reduce fees to your participants what can save as much as 50% of their lifetime savings. Protect yourselves, protect your company, and protect those who work hard to contribute to your company’s success.
Contact: Kristin Marshall, Prima Terra Inc., kmarshall@primaterrainc.com or John Sullivan, Sullivan Capital Management 800-729-1274
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