By taxclubadmin 
The defined contribution industry woefully underestimates how unprepared front-line administrators at plan sponsors are to run and oversee their retirement plan, even many mid-size and larger employers. Most get their job because someone walks into their office one day and says, “Good luck, you are now in charge of our 401(k) (403(b)) plan.” Little training and oversight are provided.
Though most plan fiduciaries have gone from being unconsciously incompetent to consciously incompetent, with a few becoming consciously competent, most are still making basic mistakes. Staff reductions and not back filling HR/benefit positions, adds to the problem.
The most popular and highest rated TPSU presentation, which was created by Prime Capital Financial Head of Retirement Jania Stout, is currently the “Ten Things You are Still Doing Wrong.” So what are they? (Read a related column about the 10 biggest mistakes plans make with their advisor)
1. Not Understanding Their Fiduciary Duties
ERISA and related rules are not recommendations; they are requirements. Plan fiduciaries are required to act as prudent experts. Many do not even realize they are fiduciaries, and most do not realize that serious breaches can lead to personal liability.
2. Failure to Monitor Investments
Regular benchmarking by an expert, preferably an independent fiduciary advisor rather than the record keeper or investment manager, is recommended. Along with diversification, a good understanding of target funds is needed because they garner the majority of new contributions. Though not required, an investment policy statement is also recommended, but only if plans follow it.
3. Lack of Understanding of Fees
The DC industry uses revenue sharing and 12(b)(1) fees embedded into investments to offset administrative and advisory fees, yet most plans do not understand them or the various share classes. Most do not read their 4018(b)(2) or 404(a)(5) disclosure reports, which are not written in plain language.
4. Not Conducting Independent Benchmarking or RFPs
Though benchmarking administrative and advisory fees annually is helpful, they cannot or should not replace periodic RFPs, which should be completed by an independent expert.
5. Overlooking Plan Operational Failures
These failures may include:
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Not following the definition of compensation
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Not reading plan documents
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Eligibility of part timers
6. Lack of Fiduciary Training of Retirement Committee Members
Laws and regulations are changing, and most members are not investment or ERISA experts. The DOL recommends proper training.
7. Poor Cybersecurity Oversight
The DOL detailed recommendations in their 2021 guidance, which includes
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Vetting and monitoring service providers and their guarantees
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Having a written and comprehensive process
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Promoting participant awareness
8. Not Monitoring Service Providers
The DC industry is changing, and fees are declining while costs are rising, which affects service. Plans need to monitor performance and deliverables, service quality and support, all of which should be in writing.
9. Overestimating the Power of Defaults
Low deferral rates can lead to poor outcomes when participants assume defaults are optimal. One-size investments do not fit all, and most defaults are not personalized. These defaults can create a false sense of security and can limit engagement.
10. Not Providing Enough Participant Education
The barriers include a lack of engagement and the cost to provide education to all. Though the industry is moving to advice and even “do-it-for-me” solutions, education and one-on-one meetings by financial coaches are still needed.