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  • Writer's pictureBrian Allen, CFP®

Is Your 401(k) Plan Adviser Costing Employees Retirement Money? – Advisors Magazine Feature

I recently contributed this article, originally published on Advisors Magazine website on January 25, 2021. I offer fiduciaries some of my tips to select a plan adviser focused on building rewarding retirement for their client’s people.


With millions of American workers invested in 401(k) plans, they want to know that their retirement savings are in good hands.

But recent legal action against some large companies indicates that’s not always the case. LinkedIn is the subject of a class-action lawsuit for alleged mismanagement of a 401(k) plan that totals $818 million. Participants in the Costco 401(k) are suing their company for alleged mismanagement of its $15.5 billion defined contribution plan.

Many companies have committees responsible for overseeing their employees’ 401(k) plans. These committees often depend on plan advisers, and to do their best to help employees maximize their 401(k)s, it’s vital that committees vet those advisers and carefully judge their performance, says Brian Allen, founder of Pension Consultants Inc. and author of Rewarding Retirement: How Fiduciary Committees Can Elevate Workers, Companies, And Communities.

“An effective plan adviser puts more money in the participants’ pockets,” Allen says. “An adviser’s most visible function is to take the lead in establishing the investment lineup and monitor those investments.

“But no one is tracking the adviser’s performance of fund selection. And it is costing participants money. In many cases, plan advisers add little or no value when selecting the investments for the plan menu. This is due to advisers’ lack of transparency and thereby avoiding accountability. Transparency is necessary both to evaluate advisers and, more importantly, to improve the number of American workers who are prepared for retirement.”

Tips for Selecting 401(k) Plan Advisers

Allen says companies’ 401(k) committees should consider the following points when selecting a plan adviser:

Beware Of Conflicts Of Interest

These are common in the plan adviser industry, Allen says, harming participants’ 401(k) plans. “Be sure to select a plan adviser without any conflict of interest that could sway their recommendations – for example, a compensation arrangement with an outside fund company or investment manager,” Allen says. “This includes accepting upfront commissions or so-called ‘trailing commissions.’ The only compensation that plan advisers should receive is from the fees paid for services to the plan. A good plan adviser, free of conflict and experienced in the industry, can be a valuable resource. And they will share insights that you need when looking for the right qualities in a record-keeper, plan custodian, or other service provider.”

Select Only A Plan Adviser Who Accepts Fiduciary Responsibility In Writing

"Plan advisers can fall under one of two classes of fiduciary, based on the level of control over the investments,” Allen says. “One is a 3(21) adviser, who has a co-fiduciary role. The adviser provides the plan and gives advice on the investments offered and the overall lineup. But the employer’s investment committee retains discretion and makes the final decisions. A 3(38) adviser has full discretion to make and implement fund and investment lineup decisions. The committee offloads the fiduciary risk of asset class and fund selection to the adviser in this situation."

Have Advisers Report Their Own Performance With Fund Selection

“Often, there’s no transparency,” Allen says, “because the advisers are not reporting their own performance regarding the funds they selected. What advisers typically don’t account for is the performance of the funds they selected after the time those funds, at their direction, were added to the company’s 401(k) plan. What their reports show is the funds’ past track record before they were added to the plan. It doesn’t show the actual returns the participants are getting on those funds since they were added.”

“Plan advisers tend to find such transparency threatening,” Allen says. “Nonetheless, this information is not difficult to compile, and it is necessary given what’s at stake for all 401(k) participants.”

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