There are many companies out there who offer employee retirement plans like a 401(k) or an IRA plan. To protect consumers and providers alike, most employer-sponsored plans are governed by the federal Employee Retirement Income Security Act (ERISA). Accordingly, the Department of Labor has recently decided to police ERISA retirement plans. The reason for this is to ascertain the suitability of the investments offered and the related out of pocket costs to plan participants.
Unfortunately, many ERISA plan participants do not know or understand their plan details or their rights as a consumer. If you are currently participating in a company-sponsored retirement plan, it is critical that you know the answers to the following types of questions related to your plan:
One of the first important questions retirement plan participants should as is if there are a range of investment options foe different stages of a person’s career. You may also want to know if there is a range of fees associated with these options. Experts suggest that a range of options and fees are a good way to go. This means that if you switch jobs, you can transfer your accounts to your new retirement plan, or to an IRA retirement plan in a “rollover.” Before you choose to rollover, or change your current plan, you will need to compare the investments, costs, and options available through each. Experts also suggest that if you do not understand the differences, you speak with a financial advisor before taking any action on your plan.
Most people who participate in retirement plans do not understand that ERISA requires a “fiduciary” to be named for each plan. Once you know this little rule, you should also ask who is the plan’s fiduciary? Is it the company you work for, the company’s executives, or is there an investment adviser specifically allocated for your plan?
Participants also have the right to obtain a copy of the “plan document” associated with your account. The “plan document” includes all the vital information about your plan including who is responsible for investment decisions. Having a specific investment adviser for your plan is obviously the preferred outcome since they will be dedicated to your plan rather than thousands of other irrelevant details.
It is also important to note that there is a “Conflict of Interest Proposed Rule.” This rule broadened the term “fiduciary” under ERISA to include more advisers and investment advice than ERISA currently covers. Although the new rule is not in place yet, it will likely be finalized in 2016. When this happens, the relationship between your plan and your investment adviser may change. If your plan has an investment adviser, you will need to ask them whether the proposed rule modifications will alter any critical parts of your plan.
3) What are the costs associated with your retirement plan?
Despite what some consumers may believe, most retirement plans are not “free.” Somewhere along the line, someone is paying. Additionally, you should know if your plan uses active management or a lower-cost alternative? Active management can add significant costs to your plan. Look through your plan paperwork. Is it easy to determine the costs associated with each investment option you have chosen? Can you see who is paying for the service providers associated with your plan? Parties like investment managers, or third-party administrators can charge a hefty fee and you may get stuck paying it.
If you are not sure about the fees associated with your 401k, do not be discouraged. Whoever administers your 401(k) plan must follow certain rules, including disclosure of fees to every plan participant. This information is often referred to as “404(a) disclosures.” This information details the fees charged to the participant and for what.
It is important to also note that even if your plan is exempt from the required disclosure rules, you can still ask for this information. We encourage you to ask for a copy and read your plan’s fee disclosures. This information could save you costs and confusion when it comes to how your plan is administered. And, as previously mentioned, if you are thinking about rolling over a plan, you will need to know about the cost differences between your current retirement plan and the rollover option you’re considering switching too.
Information appearing in this blog is intended to provide broad, general information about the ERISA and 401k accounts. This article is in no way intended to serve as legal advice. All readers are encouraged to speak to a qualified and experienced legal professional before taking any action on ERISA or 401k matters.
ERISA cases and the applicable laws can be complicated to understand or act upon. For this reason, you should seek an attorney with knowledge of the appropriate ERISA laws to help you get you the outcome you desire for your case. J. Price McNamara has been practicing law for many years and has handled many ERISA cases. The legal team at the Law Offices of J. Price McNamara is waiting to help you with your ERISA case, so do not wait. Call us today to schedule your free case review and get an experienced ERISA law firm on your side.
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