Case Study: Review the Current 401(K) Plan and Recommend a Fiduciary/Educational Process

STUDY 2

Case Study: Review the Current 401(K) Plan and Recommend a Fiduciary/Educational Process

The Challenge

The CFO of a large, multinational engineering firm with 500+ employees invited us to meet the Executive Committee responsible for making decisions for their existing 401k plan. They were concerned about Fiduciary liability with regards to monitoring plan assets with the new 2017 Department of Labor regulations. They had no formal Employee Educational program in-place from their current recordkeeper and had not reviewed the plan in over five years.

Our Solution

We met with the Executive committee, discussed the firm culture and overall Plan goals, and reviewed their current plan investments, overall fee structure, Fiduciary processes, and educational programs. We were informed that the Plan Sponsor was operating one, $30m 401(k) plan. The 401(k) had grown significantly with the acquisitions of three companies in the last 18 months. But the ownership structure of each acquired company was very different from the original ownership structure, under which the original 401(k) was established. We realized that these recent acquisitions may have created separate control groups and the Plan may be in violation of IRS rules. We informed the client that, given the different ownership structures, we would have to talk with the Plan’s Auditor whether this was allowed.

After conferring with the Auditor, we discovered that operating one, consolidated Plan under one control group violated IRS regulations and that the Plan had to be broken up into four separate and distinct plans. While administration and recordkeeping costs increased due to the Plan changes, it was determined that being in compliance with the Department of Labor and IRS regulations was most important. Utilizing Request for Proposal (RFP) data from several industry leaders in the $5m-$10m 401k market, we completed an apples-to-apples analysis of the current plan versus the new RFPs. We discussed the advantages and disadvantages of each Plan manager, including the current one in-place.

After several more conversations, the Plan Sponsor decided to implement a Plan change from its current provider to one of the new providers, operating four, separate and distinct plans. We discussed and implemented enhancements to the current plans, including a Roth 401k option, an updated Investment Policy Statement, default investment options, Target Date fund options3, and lower cost fund options. An Investment Committee was established and Annual Review meetings were scheduled to discuss any new potential Plan enhancements. FiRM, a third party software company, produced a quarterly investment report to ensure that funds were meeting their benchmarks. An Audit File documenting all the Plan’s accomplishments, progress, and review sessions were also created in case the Department of Labor wished to see a timeline of events. Finally, on-site educational programs were discussed.

After the new plan enrollment sessions, quarterly, lifestyle-based webinars and conference calls featuring third party speakers (talking about Social Security, nutrition, etc.) were scheduled and open to all employees. After the success of the meetings and webinars, the firms decided to continue with the Fiduciary and Educational program for the coming years at all of its US-based offices.

The Year 1 results were as follow: Participants increased salary deferrals by 15%, additionally, many one on one consultation on financial planning issues were completed with employees of the Plan Sponsor, further enhancing the Employer's goodwill.


*Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment or investment strategy for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted for your specific situation. 

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