401(K) Investors: Connecting Math, Emotion and Choices

Thursday 7:30 – 8:30 AM

Session Description

Retirement plan sponsors face a challenge that is more complicated than it may appear in offering employees the opportunity to save at work. Employees need to retire. And employers need to provide this benefit in a cost efficient manner.  Given the current legal environment, the stakes are high for understanding these challenges and reaching good answers.

Relative to the employees saving in the plan, they are subject to the same pitfalls that challenge most investors: lack of knowledge, poor decisions and regret. Employee education is critical to make this important benefit effective. Investor behavior, math and personalized goal planning are three topics that employers can share to drive improved choices and better individual outcomes for their savers.

As for the plan itself and its efficiency, or cost, unfortunately our financial system has created a maze that plan sponsors must navigate. The bright light needed for success in this regard is fee transparency, but ‘revenue sharing’ can make that difficult to find. Clarity as to the true cost of the retirement plan requires identification of conflicts of interest and certainty as to how various parties are paid. Breaking cost into three distinct components: 1) investment expense, 2) administrative expense and 3) the cost of advice is a powerful way to measure actual retirement plan cost.

Over the past several years, the legal ramifications of making a retirement plan available have increased in significance. Lawsuits against plan sponsors are increasingly common, and the Department of Labor has become more focused on retirement plans, in general. The Department has stated that its recent fiduciary requirements are designed to eliminate ‘conflicted advice’, which they estimate as costing Americans $17 billion per year.

No matter what shape the Department’s rules finally take, its efforts have at least added a buzz word to the retirement plan conversation: fiduciary. While it is important for retirement plan sponsors to understand the legal obligations imposed as the plan’s fiduciary, it is likely just as important to understand effective methods for retaining an outside advisor to provide fiduciary services, in an arena where conflicted advice may be common.

Learning Objectives

  1. Help retirement plan sponsors and employees understand the common pitfalls that retirement plan savers encounter and how to overcome them. A) Learn why stock market fluctuations lead to poor investing decisions: 401k savers often buy high, sell low and stay out, when left on their own. B) Explain the math showing that how much saved and how long one saves far outweighs other factors in achieving a successful retirement. In particular, the power of compounding may be a surprise for many people less familiar with investing. C) Demonstrate a useful tool that helps people plan and commit, which may act as a foundation for good investment choices, against the volatile securities markets: Shlomo Benartzi’s Retirement Goal Planning System.
  2. Employers often have a difficult time understanding the retirement plan discussion, whether that concerns the jargon, proclaimed value or cost. Decoding revenue sharing practices is the best path toward finding transparency. This practice breaks retirement plan cost into three aspects: A) investment expense B) administrative expense and C) the cost of advice.
  3. Summarize some of the recent retirement plan litigation against retirement plan sponsors, which generally concerns a claim for breach of fiduciary duty under Employee Retirement Income Security Act of 1974 (or “ERISA”), especially the U.S. Supreme Court’s decision in May 2015: Tibble v. Edison International. Cover the Department of Labor’s Fiduciary Rule, set to take effect in June 2017, with timely update relative to the new administration’s position on the Fiduciary Rule, efforts to delay its implementation in Congress and litigation against the Department of Labor, which could delay or abrogate the Rule.


Michael Smoots JD

Qualified Plan Advisors provides clients with advice concerning retirement plans. My legal experience allows me to share a unique perspective with our clients, on questions ranging from investment options to cost analysis and plan design. In this highly regulated field, I find success in presenting creative ways to help plan sponsors increase the value that retirement plans provide to their stake holders. From 2006 to 2013, I was a Vice President with a large record keeper, which served over 1 million participants and administered $100+ billion in retirement plan assets. I negotiated agreements with asset managers and helped review investments for total cost and revenue sharing, which can be used to offset administrative expense. As a member of the finance team, I reviewed hundreds of retirement plans, ranging in size from $10 million to $20 billion, relative to market price, profitability and operational efficiency.