A group of Treasure Valley experts got together this month to talk about ways Employee Retirement Income Security Act service providers can help employers appeal to today’s best workforce, while staying profitable.
Here are some topics that came to light in discussions with the accounting firm Harris & Co. and top local investment advisers, consultants, ERISA lawyers, certified public accountants and third-party administrators.
It’s common for employers to say they want 401(k) plans offering open architecture, but what does this mean? Who wouldn’t want the industry’s best funds in their 401(k) plan? The truth is that in spite of all the marketing to make investment fund options “open architecture,” any 401(k) plan that limits participants’ options is by definition not open architecture. A true open-architecture 401(k) format allows participants under the plan to select from a nearly unlimited list of qualified investment options.
But with a plan that offers thousands of investment options, how can an employer realistically honor its fiduciary responsibility and monitor each of these investments responsibly? As you can imagine, it’s not realistic to obligate plan sponsors, investment advisers and other fiduciaries of the plan to uphold their responsibility under these conditions. Now add fee disclosure rules (discussed below), and your plan would need a full-time staff member to conduct its tasks for fiduciary responsibility. From the logistic and financial demands of an employer, this simply isn’t possible.
Experts in our community came to the consensus that to effectively manage, advise and carry out fiduciary responsibilities requires narrowing down the investment selections to 10 or 20 in plans in Idaho – enough to give employees options, and employers a more realistic number to manage.
New fee disclosure rules
Fee transparency in retirement plans, particularly with participant plans such as 401(k) and 403(b) plans, has been the subject of heated debate for the past several years. This discussion culminated with the Department of Labor issuing several sets of regulations designed to facilitate fee transparency by requiring various forms of disclosure by service providers and plan administrators.
One of these requires disclosure of information about plan fees, expenses and investment options to participants and beneficiaries in 401(k), 403(b) and other types of defined contribution plans.
Service professionals are making money off of your investments every step of the way. Basically, these new regulations give people a transparent look at the monetary charges pulled from their investments – lost funds that were once buried and unknown to plan holders. These new regulations went into effect in 2012, and are focused on assisting plan administrators, employers and other fiduciaries in carrying out their duties prudently and solely in the interest of plan participants and beneficiaries. This is a work in progress. These steps will continue to be evaluated by plan professionals in our community. Along with plan sponsors, they will take on the responsibility each year to ensure proper disclosure and accuracy.
Health care law effect on benefit plans
The great unknown with our local ERISA professionals is the effect of the health care law on benefit plans. There are a lot of new fees coming out. Simultaneously, taxes are increasing. The looming question is the effect of the plan on employers’ or employees’ ability and desire to contribute to the plans.
What are companies going to do if they have to pay a significant amount in health care fees? They will likely cut expenses to compensate. But that leaves employers at a disadvantage when perceived fringe benefits such as profit-sharing and match contributions are often their greatest incentive for potential new employees. Cutting these costs will have to be weighed against the financial effects of health care in the future.
With the recent delay of components within the Affordable Care Act, businesses continue to be in a wait-and-see pattern. This could have a big effect on employee benefit plans.
Josh Tyree is a certified public accountant licensed in the state of Idaho and California. He is a senior manager at Harris & Co. PLLC and has more than 10 years of experience in public accounting. He is an active member of various associations around the Treasure Valley and a board member of the Idaho Youth Ranch.