Our Solution!

At RJ20, we pride ourselves on our reputation as true problem solvers! Given the above, we have recently created a new and unique employee wellness module, powered by The LFE Institute, to tackle all of these issues head on. We’re not looking to make things a little better; we truly solve problems. “Why slap them on the wrist with feather when you can belt them over the head with a sledgehammer.”(Katharine Hepburn).
In addition to our historical offerings, RJ20 can now provide employees with unbiased financial wellness education and much-needed unbiased proactive 401(k) retirement advice. LFE’s expertise is building life-changing skills that help employees free up more money to invest. RJ20 then advises them on how to build a solid plan, and provides the support they need to make smart investment decisions and accumulate a substantial retirement nest egg.
RJ20 Employee Wellness Key Benefits:
• An interactive, skills-based financial curriculum that has been successfully taught to employees throughout the U.S. since 1986! Over 25 years of empirical data and demonstrable results.

• “Managing Your Money!” workshop has helped a half million employees stretch their paychecks, reduce their debts, ease family conflicts over money, and avoid costly financial traps and pitfalls. On average, employees find $4,000 – $7,000 extra each year – all using this unique alternative to budgeting!

• Recent plans have seen 401(k) Participation rates jump by as much as 27% when implementing this Employee Wellness Program.

• Extra money found facilitates much higher contribution rates. On average, $2,000 of additional contributions per participant annually.

• RJ20 still takes full ownership and control of this service delivery for you and your client for total quality control. We are not outsourcing this and hoping for the best. The buck stops with us, and that’s why our clients love our attitude toward service as we have “skin in the game.”

RJ20

Our online planning solutions are focused 100% on the participant. We provide specific investment advice (not broader education) relevant to each participant’s risk tolerance, needs and goals. We tell participants whether they are on-track for their desired retirement, when even “worst case” assumptions are used. RJ20 technology is leading edge, easy to use and is clearly differentiated from the competition in its breadth and cost. It is one thing to ask basic questions about age and risk tolerance, and another thing altogether to provide participants with a roadmap to (and through) retirement. We do the latter! The advice is holistic and can incorporate all elements of a participant’s financial picture (beyond just their 401k), if desired.

There are many things which distinguish our offerings, including the low cost, unlimited CFP support, ease of use and the nature of our future participant tort liability shift. However, the single most important issue is our overall utilization rates run in the 30-60% range. This is purportedly more than 10X the experience demonstrated by the emerald lines up in Boston. RJ20 proactively encourages and facilitates contact. If your current planning tools aren’t used, your clients aren’t benefiting from the documented better performance (often 1.5% – 3% annually), or the planning piece of mind. A benefit is only a benefit if it is actually used. Our solutions are utilized!

Adding RJ20 into the solutions mix can:

• Broaden your reach; provide an additional arrow in the quiver to allow you to reach more existing participants, and bid on even larger new deals.

• Greatly improve planning utilization amongst participants.

• Give many participants a more desirous means of accessing planning solutions (surveys indicate around 30% of your participants prefer online options).

• Allow you the most economic (time and money) access to the likes of road warriors, expats, remote office employees, retirees, home office workers, third shifters, etc. RJ20 can improve Advisor and Sponsor bottom lines through the more efficient allocation of resources and improved employee processes.

• Improve plan investment returns!

• Shift future tort liability, and

• Greatly differentiate your offerings in the marketplace today.

Cost/Benefit

Independent from our new wellness program, RJ20’s basic package only costs $15/participant annually. This translates to just $3000 a year for a 200 person plan.

Depending on the employee wellness option chosen, this module adds an incremental $5-$15/Participant annually. The all-in, top tier package costs only $30/participant annually. This usually translates to only 4-16BPs. There is no long term contract, if we don’t deliver on our promises, you won’t renew!

As part of our bundled solution, the entire cost can be paid out of plan assets! Additionally, if your client has a Wellness budget, that pool may now help fund your 401k enhancements.

Other

Beyond the planning benefits to participants, we also benefit advisors and sponsors by shifting future Participant tort liability to us. This is a responsibility RJ20 takes on willingly and acknowledges in writing in the first paragraph of our contract. We assume 3(21)(a)(ii) future Participant tort liability for all active covered Participants (with online access) versus just users of our solutions. RJ20 effectively owns the ERISA liability for all active Participants once the contract is paid, and we’ve communicated our solutions. We thus have a very strong incentive to encourage full utilization.

To learn more about our solutions schedule a webinar with RJ20. Just shoot me back an email and we’ll set it up. Additionally, if you desire customized one page additions for your pitch books, just let me know.

Matthew Craig,
SVP – Sales, RJ20
(919)414-8663
MatthewCraig@RJ20.com

LFE
The LFE Institute has helped well over 500,000 employees nationally improve their money sense. They’ve helped employees “find” thousands of extra dollars to invest each year. After completing LFE’s intensive Certification Process, their independent instructors and money coaches are able to generate the specific results corporations are looking for, and to provide the Financial Education employees need so desperately today. We are proud to have LFE power our wellness program at a significant discount to their own pricing.

The premier union of the LFE Institute and RJ20 combines financial education with unbiased 401(k) advice into a total Financial Wellness Program for employers. This affiliation helps employers solve employee financial problems, increase Plan participation, reduce costs, retain the best talent, and minimize liability exposure.

Springfield, MO (PRWEB) January 23, 2012

American workers are suffering financially. The Federal Reserve reported that credit card debt increased in November to $2.48 trillion–the biggest one-month jump in 10 years–and that student loan debt could soon top $1 trillion. Furthermore, the U.S. Senate recently reported that the gap between what Americans have and what they’ll need at retirement is estimated at a staggering $6.6 trillion. These challenges, along with uncertainties in Social Security, highlight harsh economic realities as 77 million baby boomers move toward retirement. They are too often on their own when it comes to solving critical financial problems and making key decisions in today’s volatile economic climate. This has motivated companies to seek unbiased Financial Wellness solutions that include unbiased 401(k) advice.

The LFE Institute and RJ20 are now working together to provide these solutions with unbiased education and much-needed retirement advice. With years of expertise in their respective fields, each firm is passionate about making a positive difference in the financial lives of today’s workforce and the companies who employ them.

The LFE Institute has helped well over 500,000 employees nationally build specific skills to stretch their paychecks, reduce debts, and avoid financial traps. These skills–plus LFE’s ongoing weekly e-learning series, the Money Minute!–help employees “find” thousands of extra dollars to invest each year.

RJ20 advisory services give employees what they need most in their employer-sponsored retirement plans: unbiased help to select the best investment options and innovative planning tools to help them reach their goals. RJ20 incorporates an employee’s complete financial profile to deliver technical support in the planning process, along with highly experienced CFPs® to guide employees when making life-event financial decisions throughout their work lives.

“Reducing employee financial stress is a key part of any Wellness Program today,” states Alice Whinnery, CEO of the LFE Institute. “A huge factor contributing to this stress is the inability to find the money to save for retirement. Our expertise is building life-changing skills that help employees free up more money to invest. RJ20 then advises them on how to build a solid plan, and provides the support they need to make smart investment decisions to accumulate a substantial retirement nest egg.”

“Giving unbiased investment advice through our proprietary planning solution, paired with CFP® support, helps employees make the best choices with every investment dollar,” reports Sean Ruehl, one of the co-founders of RJ20. “We work closely with Plan Providers and employers to increase Plan participation and relieve fiduciary responsibilities for employers. The numbers grow exponentially once they are able to find more money to invest through LFE’s services.”

“With the complexity in today’s market, employees need education and advice from experts who have no agenda,” according to Chip Jurgensen, a co-founder of RJ20. “The partnership we have with LFE is rare in today’s marketplace and is a powerful synergistic solution for employers.”

In an industry where typically only large investors receive adequate support, LFE and RJ20 are committed to helping the average American receive the attention, education, and advice they need to solve their financial problems and build a stronger financial future.

About the LFE Institute: The LFE Institute provides full-service Financial Wellness solutions, including skill-based on-site and Web-based workshops, personal Money Coaching to help employees make smart day-to-day financial decisions, and a weekly educational series, the Money Minute! LFE sells no products or services other than unbiased education.

About RJ20: RJ20 specializes in personalized 401(k) advice for employees. RJ20 delivers virtual investment advice and life-event financial planning online and answers plan participants’ questions with Certified Financial Planners™. RJ20 sells no products or receives any compensation other than their low flat fee for investment advice.

2011 has been a strong year for RJ20! We sincerely thank our new and existing clients for all they’ve done to put us on our current path, and for believing in our solutions and promises. We will continue to strive to ensure Participants receive top tier advice and that benefits continue to accrue to Advisors and Sponsors as well. Our mantra has never rung more true. “RJ20, Bringing the Best of Wall Street to All of Main Street”. Thank You!

Sean Ruehl, Chip Jurgensen and the entire RJ20 team
 
A Look Back

After lengthy histories in wealth management, we started RJ20 to bring strong planning capabilities to all retirement plan participants. Online capabilities and the backbone technologies had sufficiently advanced to allow us to bring cost effective alternatives to a broad audience. The solutions were in development for over two years before we established a more proactive focus on sales in 2011. In June, we hired our first dedicated sales manager (Matt Craig), and are proud of the success we’ve already enjoyed. This has been our breakout year! Our growth has been geometric not linear, and our pipeline is very strong! Recently, one of our partners jokingly said that soon we’ll need to change our name to RJ30. Today, we are aligned with some of the largest Advisors and TPAs in the country to differentiate their product offerings, enhance their own value propositions ahead of 408(b)2, and continue to position them as true problem solvers.

In addition to beefing up sales, we continue to ensure the solutions are properly supported. All support is unlimited and continues to come from CFPs exclusively. We’ve added Planners internally as full time employees and to our established external network. Today, we have 20 total planners on board!

Our growth and organizational changes aside, in 2011 we were particularly pleased to see further validation for planning solutions in general. Our solutions proved very effective and (per clients) have improved Participant performance. Exemplifying this, in a year when virtually every expert was bearish on US Government Bonds (including even Bill Gross, PIMCO’s bond guru), our users largely maintained some focus there and benefited. US Government Bonds were the top performing asset class, despite the active managers’ overall distain. We don’t try to guess the next hot dot, but rather want Participants to have broad diversification aligned with their personal risk tolerance, goals and objectives. Using Monte Carlo analysis, we also want clients to minimize all assumed risk. Dalbar, Morningstar and others have published extensively on how investing under a formal plan can improve performance anywhere from 1.5% – 5% annually, over time. While unquantified, our own empirical data supports this thesis.

Our solutions not only helped Participants improve performance, they also stayed engaged in the process. In a year of heightened volatility, with 300 point down days followed immediately by 400 point up days, our clients never took their eyes off the ultimate prize (retirement) and largely stayed the course within their retirement plans. We’ve read of many others who got scared or frustrated, and moved to cash at exactly the wrong time. When clients are engaged in the process and understand money is a means to an end, they tend to panic less and make moves based on the long term. We’re proud that our solutions are clearly working.

Continually Improving

Despite our success, we aren’t resting on our laurels, and continually strive to solve your problems. Throughout the year we have made numerous enhancements to our solutions. Here are some of the key ones:
1) Solutions never actually solve anything, unless they are actually utilized. Ours are! We’re proud that our utilization rates are often more than 10X that of competitors, and we strengthened our proactive focus here in 2011 by:
• Developing email templates for existing users to remind Participants, numerous times a year, of the benefits of planning and using our solutions. We found users often value a friendly reminder.
• We are just now also making posters available so Sponsors can hang a reminder of our capabilities in lunch or coffee rooms, etc., if desired.
• While we are primarily an online company, we’ve just begun to manually input the information for Participants when they either don’t have internet access or find the process cumbersome. We will make hard copies of our inputs available to all. Once we receive them back, we input them within one week’s time and then send a hard copy of our recommendations out. For the foreseeable future, this is something we will offer at no additional charge. We’re going to do whatever you need us to do to improve your plans and hike our joint value added propositions.

2) While we caution Advisors to be sensitive to nondiscrimination issues, we can make our solutions available to key Participant subsets, if desired. For instance, some may use us for just retirees and exemployees (a group with a higher potential future litigation risk), to further shield both Advisor and Sponsor.

3) Lifetime or Target Date funds have been an effective answer for participants who have not had the benefit of thorough retirement income planning and investment advice. Now our service can objectively help the participant learn for themselves and make an educated decision. Users can toggle between expected returns of both (or all three) types of allocations to choose the one best for them. It is surprising how portfolios can become unoptimized fairly quickly, and we encourage users to revisit the planning capabilities at least once annually. However, if they don’t want to be bothered with that, Target Date funds can be good alternatives.

4) Beyond our 401k allocation tools, RJ20 also offers broader tools for things like debt management, mortgage planning and college planning. However, we were discouraged at relatively low utilization rates for these additional services. As such, we’ve changed vendors for these, and now offer a much more robust package here. It is still free for all users and if you want access to the new tools, just let us know and we’ll turn it on for you!

5) Recognizing the need to simplify the process for advisors to introduce our capabilities, we now offer customized marketing material for everyone. We have customized pitchbook pages, and customized collateral available for everyone. Our goal is to offload work from you, not to add any, so anything we can provide to facilitate things we will.

6) For nonintegrated users, we now offer Participants a customized box, after plans are generated, so that they can direct Participants specifically where to go to submit changes. Integrated users can continue to just hit the “accept button”. These instructions can include a hotlink to another website if desired.

7) We can now sort on any data input for monthly reports. This can help you/us better track things like raised contribution levels based on the planning.

Coming Soon

1) We are widening the net of where we can be integrated. We expect to be integrated with one or two of the larger insurance providers in this space by midyear. Today, we can essentially integrate with all independent TPAs, but we are always looking at how we can expand this further. Even when not integrated, you still derive the full scope of our advisory services. Although in reality the differences for Participants are nominal, our goal is to link with as many as possible.

2) We also understand the importance of differentiating involved conduits and elevating an Advisor’s own value proposition in the Sponsors eye. As such, we are considering potentially customizing our output so Advisor names are spotlighted, as well as the aforementioned customized marketing and collateral pieces. We are obviously proud of what our product does and how it looks. Any time we can put Advisor’s names in a favorable light through association, we will, if desired.

3) Lastly, but not least, we are bundling our solutions (when desired) with one of the premier life coaching companies in the country, to further enhance our offerings. When professionals may be needed for onsite or broadcast assistance to help Participants with broader financial assistance, and to encourage higher contribution activity, we will facilitate it. We see 20 years of empirical data that give us a high degree of confidence that we can see material and quantifiable results from this added service. It will be available for a nominal extra cost (and we are working on pricing as we speak), but the benefits for all parties involved will also be quite obvious. We want people to think of RJ20 as a high ROI investment with a quick payback, versus a cost, and this affiliation furthers that notion. We’re really excited about this and will announce more shortly!

Thanks again to all our partners and clients! We couldn’t have done it without you and look forward to exceeding all expectations again in 2012!

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RJ20 Solution:
Our online planning solutions are focused 100% on the Participant. We provide allocation advice (not broader education) relevant to specific participant risk tolerance, needs and goals. We tell Participants whether they are on-track for the retirement desired, when even “worst case” assumptions are used. Our goal is to make affordable high value added planning capabilities available to everyone, not just the wealthy. In engaging the Participants in the process, they realize money is a means not an end, and better understand why they are contributing every month. When people keep their “eye on the prize” so to speak, it minimizes fears and keeps them from making short term investment mistakes.

RJ20 technology is leading edge, and easy to use and is clearly differentiated from the competition in its breadth and cost. It is one thing to ask basic questions about age and risk tolerance, and another thing altogether to provide Participants with a road-map to (and through) retirement. We do the latter! We use rigorous financial and behavioral techniques including Wealth Scaling, Adaptive Questioning, Absolute Mapping, Psychometrics and Behavioral Finance. We also use Monte Carlo simulations in our modeling using expected returns, standard deviations, correlations, cash flows etc. to generate allocation recommendations. The advice is holistic and can incorporate all elements of a Participant’s financial picture (beyond just their 401k), if desired.

Why Add RJ20?
In addition to the obvious demand and need from Participants, and accommodation desires by Sponsors, advisors should add Participant advice for several critical reasons.

First is for competitive reasons. Today more than half of existing plans purportedly have specific Participant advice (though I think it much lower when age based plans are eliminated from the group). Additionally, growth of this benefit is geometric, not linear, right now. This includes direct competition from the discount brokers. The last thing anyone wants is for their offering to be behind the eight ball regarding a key client need, especially when competing against the discounters. The fact that we can take this competitive issue off the table for an immaterial cost, may help turn a future “no” to a “yes”. Many of your competitors are highlighting Participant advice as we speak.

Secondly, 408(b)2 becomes effective soon. Many are trying to strengthen their own value propositions ahead of that change. Since Morningstar began to focus on costs, 91% of all mutual funds purchased have been funds with costs below the industry median. I suspect most advisors who think they can counter the new spotlight on costs with excellent service alone may be in for a surprise. Clearly, based on what RJ20 has seen in the mutual fund industry, cost is a more critical piece of the analysis than many advisors previously believed. It may prove equally important for Plan Advisors too. Many advisors may either need to cut costs or improve offerings to compete. We can help!

Even if your firm already offers Participant advice, RJ20 should be added to the mix. Our online solutions will:
• Broaden your reach.
• Greatly improve planning utilization amongst Participants.
• Give many Participants a more desirous means of accessing planning solutions (surveys indicate around 30% of your participants prefer online options).
• Allow you the most economic (time and money) access to the likes of road warriors, expats, remote office employees, retirees, home office workers, third shifters, etc. RJ20 can help you improve your bottom line through the more efficient allocation of your own resources.
• Improve Plan Performance (Investment Returns)!
• Shift future tort liability.

What Distinguishes RJ20?
• Significantly higher utilization rates.
• Extremely Low Cost.
• Fully integrated or stand-alone system.
• Depth of risk questioning.
• Recommendations when “off-track”.
• Fund (vs. asset class) level advice.
• Broader financial planning capabilities.
• Unlimited, top tier, CFP® support for all.
• 3(21)(a)(ii) future tort liability assumed for all.
• Sale to Sponsors is easy.
• We don’t compete with you.

RJ20’s utilization rates are running around 40%. That is not a typo. We understand our key competitors often run at less than 3%. RJ20 does everything in its power to proactively encourage and facilitate contact. We know that a dot in a website tray alone (even one customizable like ours), doesn’t cut it. Our work begins once a contract is signed! If your current planning tools aren’t used, your clients aren’t benefiting from the attendant better performance (often 1.5% – 3% annually), or the planning piece of mind. A benefit is only a benefit if it is actually used. Our solutions are utilized!

RJ20 solutions only cost $15/Participant annually. This translates to just $3000 a year for a 200 person plan. This often works out to 1-3 basis points. The cost should not impact Participant’s performance one iota, unlike the cost of some competitive offerings. It can be paid from plan assets.

All support is provided by Certified Financial Planners. Experts agree solutions are only as strong as their weakest link, and as such all service and support is provided exclusively by CFP®s. These top tier planners are available to every Participant, not just key executives! RJ20 has put as much thought and resources into supporting the solutions as it did in building them. Support is unlimited!

RJ20 solutions shift future Participant tort liability from brokers, consultants, and Sponsors to us. This is a responsibility RJ20 takes on willingly and acknowledges in writing in the first paragraph of our contract. We assume 3(21)(a)(ii) future Participant tort liability for all active covered Participants (with online access) versus just users of our solutions. RJ20 effectively owns the ERISA liability for all active Participants once the contract is paid, and we’ve communicated our solutions. We thus have a very, very strong incentive to encourage full utilization. I am unaware of any others which accept the liability shift when RJ20 does (competitors often require a plan to first run).

To learn more about how you can shift future tort liability, while delivering to Participants and Sponsors what they most need and desire, schedule a webinar with RJ20. Just shoot me back an email and we’ll set it up.

Matthew Craig,
SVP – Sales, RJ20
(919)414-8663
MatthewCraig@RJ20.com

As we continually forge new paths in the marketplace trying to bring our virtual investment advice, retirement income planning, and goals-based financial planning to 401(k) participants to improve participant outcomes, what a pleasure it is meeting so many looking for such a service to round out their plan design.

Too often we see the investment provider showcasing QDIA options with simple retirement calculators as if this can effectively do the rigorous planning participants need to be sure they will have adequate retirement income to last their entire lifetime. Also, how does this simplified solution provide for outside assets, pensions, other income streams, or expense items such as college funding or liquidity emergencies? It doesn’t.

It is refreshing to see so many in the market committed to providing participants a service robust enough to incorporate these life events into their planning purposes, which realistically is their most important financial goal they’re planning for. So why settle for a band aid…or make the assumption that a band aid is all your participants need?

It is an honor and privilege to work with so many and be entrusted with this most important task of serving as the fiduciary to be sure the plan participants meet their retirement goals!

Many thanks to all of you!

Sean Ruehl
President
RJ20

Matthew Craig

SVP – Sales

MatthewCraig@RJ20.com

Ph: (919)414-8663

The Problem:

We live in a litigious world!  Today, nearly 1 in 7 Federal lawsuits is an ERISA case.  Kraft gets all the headlines, but there are thousands more.  Litigation is found on both the Plan and Participant levels.  In all likelihood, pending regulatory changes may increase (perhaps even dramatically) litigation risks.

Our Solution:

RJ20 is an insured 3(21)(a)(ii) Fiduciary.  When clients use our allocation solutions, future Participant tort liability shifts from broker’s, consultant’s and Sponsor’s shoulders to ours.  This is a responsibility that RJ20 takes on willingly and acknowledges in writing in the first paragraph of our contract. 

When a plan is generated (whether accepted or not), it is logged and retained by our system.  Once done, future Participant tort liability shifts over to us.  We capture and retain all information on individual client webpages.  From a fiduciary perspective, these saved webpages provide for the shifted liability.   In the future, one can’t argue they weren’t advised to take a specific path, which may differ from what they actually chose.

 We help shield you from the “No one ever told me” and “someone should have told me” types of liability, e.g. 

1. No one ever told me I shouldn’t have 80% of my 401k in company stock (think Enron).
2. Someone should have told me that 75% of my 401k in emerging markets was risky.
3. No one ever said I should have broader diversification to minimize risk.
4. Someone should have told me that I should save more than I currently do to reach my desired retirement timeframe and goals.
5. No one ever told me that holding large cash balances involved its own set of risks.

 A Boston based discount brokerage firm is known for having deep pockets, and does a ton of software development in house.  However, they didn’t build their own Participant allocation/recommendation solutions.  Instead, they hired an outside vendor, and it is important to understand why.  They offered the service based on client demand, but they outsourced it for liability shifting reasons.  Every time one of their clients runs a plan, much of the ERISA risk shifts to another firm.  They now have a million clients who are effectively off their books from a liability perspective, but remain on the books from a revenue perspective.  Wow, talk about an enviable position.

You can replicate their success here!  Our solutions offer a colored line for the rest of us, but with greater functionality, much more robust analytics, higher utilization rates, CFP top tier support, and a significantly lower price point.

We also help sponsors reach a broader audience.  Irrespective of how many kickoff meetings, webinars, emails or other efforts to reach all participants are attempted; no one ever reaches them all.  Think about the third shifters, retirees, expats in very different time zones, remote office workers, and road warriors.  The net of this is that despite sincere efforts, many Participants either aren’t or can’t be easily accessible.  Our online solutions can help you connect with these Participants on their own terms.

The reason I mention this group when discussing liabilities, is I want you to think about who usually seeks legal recourse.  Is it the engaged employee who takes advantage of all that is offered, or the ignored?  Factually, it is usually the latter.  If they are in the subset that you either didn’t or couldn’t engage, studies indicate that many other service providers either didn’t or couldn’t reach them either.  These folks tire of what they perceive (and perception is reality) is second class citizen status, and are far more likely to sue than others.  They rationalize that had they gotten the help others received, this (whatever went wrong) never would have happened to them.  Just because this group is missed on the first, second and third cuts, doesn’t mean the Sponsor shouldn’t put even greater effort and resources into getting them engaged, to prevent future legal action.  It is always cheaper to proactively eliminate a risk than to address it after the fact!  Rather than doing the same thing again and again, in hopes of getting a different result (something Einstein defined as insanity), why not try something new? 

In closing, it is important to understand that two pending regulatory changes (and future market downturns) will exacerbate legal issues.   408(b)2 is effective 1/1/12, and greatly heightens cost visibility.  Sponsors must share cost information with all participants.  Time will tell impact, but lawsuits won’t decline when this is implemented.   The second issue relates to the definition of fiduciary.  The new definition will likely alter current 5-part test so that rendering of any one part trips the definition versus the need for all five.  The likely exposure to conduits may go up many fold.   Our solutions can lower potential exposure instead of allowing it to rise!  RJ20 can help!

To learn more about how you can shift future tort liability, while delivering to Participants what they most need and desire, schedule a 15 minute webinar with RJ20.  Just shoot me back an email and we’ll set it up.

Nowhere to Hide on Hidden 401(k) Fees

With plan participants increasingly litigious, plan sponsors must take care that investment and administration expenses are “reasonable.”
Jeff Mamorsky, CFO.com | US
June 20, 2011

Under ERISA, CFOs and other retirement-plan fiduciaries are required to understand the fees and expenses charged and the services provided to the plan. While ERISA does not specify a permissible level of fees, the Section 404(a) fiduciary rules require that fees charged to a plan be “reasonable.”  (For participant advice, we’ve come across many HR managers that clearly don’t know if they have this service or not, what the fee is, and where the fee is deducted.  Many believe the service is free!  Yet they are unaware that it is actually included in the investment advisory fee, thus “hidden” from their awareness and understanding.  Surely this isn’t about to become a problem for them…)

Not only is there potential fiduciary liability for failure to examine this issue, but also the ERISA Section 404(c) safe harbor (which insulates a plan sponsor from ERISA fiduciary liability) may be negated by a failure to identify and disclose all plan fees and expenses to participants.  (Are you at risk of negating your safe harbor status?)

In addition, arrangements with service providers may be considered prohibited transactions under Section 406 if the exemption provided in Section 408(b)(2) is not satisfied, subjecting the plan fiduciaries and the service providers to tax penalties. To satisfy the requirements of this exemption, an arrangement between a plan and a service provider will not be a prohibited transaction if: 1) the contract or arrangement is “reasonable,” 2) the services provided are necessary for operating the plan, and 3) the service provider’s compensation is “reasonable” for such services. Currently, the standard for evaluating what fees are reasonable is unclear, making it difficult for plan sponsors to determine whether a service provider arrangement will constitute a prohibited transaction.

A Ploy Named Sue
This has led to a flurry of ”hidden fee” litigation, reflecting plan participants’ dissatisfaction with inadequate fee-disclosure requirements and the need for protection from excessive fees. Plan participants have filed multiple lawsuits against plan sponsors, claiming that the decision to pay excessive investment and administrative fees was imprudent and a breach of the fiduciary duty of care.  (Why not move away from “hidden fee” arrangements and enlist flat fee providers who fully disclose their services to not only protect you, but do the right thing for your employee participants.  By using the right provider you may be able to document a higher value service for a lower flat fee…thus removing the “wind in the sails” of participants claiming excessive and imprudent fees etc.  If your vendors won’t do this, shouldn’t you find one that models their practice around how you choose to do business rather than requiring you to conform to them, the vendor?)

As a result, employer plan sponsors have hired investment consultants to advise them on the reasonableness and identification of plan investment and administrative fees and expenses. In fact, there is a tendency to rely on such independent advice from outside experts.

However, in the first “excessive and unreasonable fees” decision to go to trial, a U.S. District Court in California held that while securing independent advice from an investment consultant is “some evidence” of a thorough investigation, it is not a complete defense to a charge of imprudence. At the least, said the court, plan fiduciaries must “make certain that reliance on the expert’s advice is reasonably justified.” According to the ruling, this is accomplished with evidence demonstrating the thoroughness and scope of the consultant’s review. In effect, an employer plan sponsor cannot “hide behind” a consultant but must be able to produce evidence of a robust and thorough investigation through procedural and substantive prudent process standards, a forensic fee audit, and benchmarking [Tibble v. Edison Int'l, C.D. Cal., No. CV 07-5359 SVW (AGRx), 7/8/10]. (Be sure to realize that you will still want to have your documentation that you have a thorough competitive bid for each service in your plan as opposed to just relying on your plan c0nsultant, as the onus of proof is still on you to prove you did this thorough due diligence.)

In a comprehensive 82-page decision, which is must reading for employers concerned about hidden fee liability, the district court found that the fiduciaries of Southern California Edison’s (SCE) 401(k) plan breached their duty of prudence under ERISA when they selected more costly retail class mutual funds for the plan instead of attempting to secure institutional class mutual funds.  (How much longer until we see the analogy of “retail” vs. “institutional” funds play out in litigation over other vendors services like participant advice for robustness of services delivered for how comparable a cost?)

The fiduciaries found liable were not only the employer plan sponsor but also members of the plan investment and benefits committees, the vice president of human resources, and the manager of the sponsor’s Human Resources Service Center. (Hence, nowhere to hide.)

In concluding that the fiduciaries breached their duty of prudence, the court emphasized that there was no evidence that the fiduciaries investigated the difference between the retail-class funds and the institutional-class funds. Had the fiduciaries weighed the relative merits of the two fund types, said the court, “they would have realized that the institutional share classes offered the exact same investment at a lower cost to the Plan participants.”

Plaintiffs representing the plan participants in this class-action suit argued that, when deciding to invest in the retail share classes rather than the cheaper institutional share classes, the defendant fiduciaries were improperly motivated by a desire to capture more revenue sharing for Southern California Edison (SCE), even though doing so increased the fees charged to plan participants. Plaintiffs argued that defendants put the interests of SCE in offsetting the plan’s record-keeping costs through revenue sharing above the interests of the plan participants in paying lower fees. To support that claim, plaintiffs relied primarily on a series of e-mails, generally between members of SCE’s investments staff and human resources department.

To determine whether the decision to invest in retail share classes constituted a breach of the duty of prudence, the court examined whether the fiduciaries engaged in a thorough investigation of the merits of the investment at the time the funds were added to the plan. The finding was that “there is no evidence that defendants even considered or evaluated the different share classes when the funds were added to the Plan.”

The court further emphasized that the presentation materials the SCE investment staff, prepared for Plan Investment Committee meeting at which the Investments Staff recommended adding these funds to the plan, “contained no information about theinstitutional share classes.” According to the court, “The Investment Staff simply recommended adding the retail share classes of these funds without any consideration of whether the institutional share classes offered greater benefits to the plan participants. Thus, the plan fiduciaries responsible for selecting the mutual funds (the Investment Committees) were not informed about the institutional share classes.” (Just because there is an investment committee doesn’t mean they understand these nuances and are doing the best thing.  For example we came across one that actually told us it was BECAUSE of the Pension Protection Act of 2006 that they couldn’t hire an independent, objective participant advisory fiduciary to provide advice to their participants!  Clearly it was this very thing that came about to help sponsors feel more comfortable in reaching out to independent professional advisory solutions to help their employees who are clamoring for such services.)

Specifically, the court said, the defendants did not present evidence of: the recommendations the investment consultant made to the investment committee; the scope of the consultant’s review; whether the consultant considered both the retail and the institutional share classes; whether the consultant provided information to the investment committee about the different share classes; what questions were asked regarding the recommendations; and what steps the investment committee took to evaluate the consultant’s recommendations. Thus, while reliance on a consultant’s recommendations may be justified in some circumstances, in this instance the court could not conclude that such reliance was prudent or reasonable.

What Fiduciaries Can Do
It is imperative that employer plan fiduciaries establish best-practice governance standards relating to the identification and disclosure of “hidden” fees so they can demonstrate the robustness of their analysis and conclude that 1) the compensation paid directly or indirectly to investment and administrative service practices is no more than “reasonable,” and 2) actions of the service providers are monitored to assure that any fee offset to which the plan is entitled is correctly calculated and applied.

“Reasonableness of fees” is not easily ascertained. Service providers normally disclose fees otherwise required to be disclosed, such as 12b-1 fees, but not indirect fees they receive from mutual-fund vendors, which are typically prevented from disclosure by agreements that service providers claim are confidential or proprietary. Accordingly, it may be difficult to conduct a forensic investigation and the “adversarial” negotiation necessary to identify embedded and undisclosed fees. (Do you believe that if it was you under this same scrutiny for your plan or your client’s plan that you can document that a vendor’s fee is “reasonable” compared to the vendor’s peer group universe?  If you have any doubt, don’t you think you should secure this documentation as soon as is practical?)

That is the purview of an independent ERISA attorney. In-house and plan counsel, as well as accounting or consulting firms, may not be able to offer confidentiality as a result of the “fiduciary exception” to attorney-client privilege. Making all efforts to establish and preserve confidentiality is critical in the event of litigation for excessive fees that may come to light as the result of a forensic plan-expense review.

Jeff Mamorsky is co-chair of the global benefits practice at law firm Greenberg Traurig.

© CFO Publishing Corporation 2009. All rights reserved.

We hope you enjoyed this article.  We also hope that our comments may initiate a meaningful discussion on these timely topics.

Thank you for stopping by!

RJ20

• plan sponsors
• advisors and consultants who provide these plans to sponsors
• fiduciary consultants to the plan and/or participants
• benefits firms serving in any of these capacities

The important take-away here is that despite all the accomplishments and capabilities of the retirement plan industry, there is still a gaping hole in saturating the plan participants with “effective” knowledge so they feel confident to meet their goals.

There really needs to be a partnering of expertise, in a trusted and un-conflicted environment to have a realistic chance of saturating the participant base with what they need.  For example, we have seen many plan advisors that consult the sponsor on the funds in the plan, provide the plan, provide education/guidance/advice (any combination) to the participants and say they have no conflicts and totally take care of their participant base.   Two important questions are: 1) If you provide everything in the equation, how can there be no conflicts from a technical point of view?  2) How can your firm meet one-on-one with all the participants in their plans especially considering when the sponsors are larger and have multiple locations?

1) Most of the advisors who provide all these services do a terrific job and truly don’t provide conflicted services, even though the potential is there if they’re not clearly just on one side of the fence (i.e. being a consultant to just the sponsor or just the participants etc.)  So how can they do this with a technical conflict?  To our understanding, there is a work-around in the Pension Protection Act of 2006 that allows one firm or person to do all of this.  Ok, but if being a fiduciary means doing the highest and best for the client, should a work-around equate to the highest and best solution you can deliver for your client?  Perhaps they can explore partnering with a trusted participant fiduciary advisor that cannot compete with them, but only compliment them and in the process raise the fiduciary standard above that of the PPA 2006′s work-around to that of the highest and best caliber for the sponsor and its pariticpants.

2) These same advisors say they meet with as many participants as meetings are requested even in multiple locations.  I’m sure that’s very true.  However, we all know that the meetings requested are not the only people interested in getting advice or the following article would not have been posted, and the entire industry scratches their head trying to find the solution to get through to everyone.  The way to get through to everyone is for the advisors to partner with a service that can automatically provide the advice online and service any questions with Certified Financial Planners®, and when product questions come up or meeting requests arise this service refers these issues back to the advisor so now the highest potential of servicing participants is reached.

These services are available and are not the bolt-on services that the product providers offer as they limit their services to just retirement and investments and don’t address the open world of any goals-based planning topics important to the participant, and Certified Financial Planners® are not part of the basic service.  Instead a significant asset management fee is incorporated in the participant’s account to bring on someone with this credential.

We hope these insights set the stage for a terrific article below.  Thanks as always for stopping by!

Workers want employers to provide guidance, advice on retirement planning

Advisor One | April 4, 2011 | By Danielle Andrus, AdvisorOne

ING Retirement Research Institute released a white paper Monday outlining employees’ retirement dilemma; namely that while employees want control of their assets, they’re not sure about how to invest them, and turn to their employers for guidance.

The paper, based on research conducted for ING by Boston Consulting Group between May 2010 and August 2010, found that almost half of employees don’t feel in control of their retirement plan. Employees want regular contact from their employers on advice and services, especially regarding asset allocation and how to calculate what they’ll need in retirement.

“We wondered why, with all the research out there, aren’t workers saving?” Ashley Agard, head of the ING Retirement Research Institute, told AdvisorOne. The reason, ING found, is that workers are confused and overwhelmed.

“Employers do a very good job with in-plan advice,” she said, “but workers are looking for broader, more holistic advice.”

The paper cites several roadblocks to employees’ retirement plan:

• Too many choices. Too many investment options can be overwhelming.
• Good old-fashioned procrastination. Workers know they need to save, they just don’t.
• “Hyperbolic” discounting. Workers overestimate the sacrifices they’ll have to make to save.
• They want it to be easier. Workers want to be in control, but they also want planning to be convenient.
• They want to be told what to do. Workers want clear direction in what they need to do, and how much they need to save.

“Employers are very interested in helping workers retire,” Agard (left) said. “It’s the right thing to do, it’s a smart business decision. Consumers want to be empowered, yet they’re feeling very confused. Employers need help introducing tools and resources to give workers a roadmap.”

“For advisors, the biggest need is to help employers understand what participants need, how they’re feeling and what they want.” Agard reiterated workers’ interest in holistic advice adding that workers want to be in control but are looking for very prescriptive solutions for different periods of their lives.

“The study was enlightening for us,” Agard concluded. “The Institute’s basis is to understand the mindset, emotions and behavior behind why people do what they do. The products of the future will be built around advice.”

About the Author

Danielle Andrus, AdvisorOne

Danielle Andrus is managing editor of Investment Advisor magazine. She has a BA in economics from the University of California, Santa Cruz.