401k Propsecting Model
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[quote=anonymous]
Akkula, let me start by apologizing to you because it probably feels like I'm looking for reasons to attack your posts. Please don't take it that way. I'm only trying to be helpful.[/quote] Thanks for the apology and I am glad you got that impression as well. MPR didn't really seem like he was asking if he should pursue 401k plans, he asked about favorite vendors and potential strategies. If he/she has made the decision to move forward with that niche, great! Many of the posts regarding topic are of value to many other posters on this board as well judging by the number of PMs I have received. Get off the soap box, put in your $0.02, and stop being the "wet blanket" on threads that kills discussions and causes a lot of people to avoid posting for fear they will be attacked. The advice you give for noobs is very valuable but try not to beat it to death. The one thing I have notice about this forum is there is a lack of quality content and threads like this one. The silly back and forth and baiting and trolling on this forum will hopefully cease at some point so it can be more of the resource it was intended to be.Akkula, You get attacked because you have a secretarial type position and have never sold, yet you try to give advice. I can't imagine that there is anyone here who is worried about me attacking them.
Anyhow, to get back on topic, another recent topic of discussion are the qualified default investment alternatives (QDIA). Do a google search on these. Many prospects you talk to probably haven’t selected one and it affords them additional protections under the PPA. Basically anyone who has their investment allocations defaulted because they were automatically enrolled or received a profit sharing or for some reason didn’t select their investments are put into a default fund. It used to be that fiduciaries could be liable for losses in the default fund so many chose a stable value option so no money would be lost. This has now changed and plans should be selecting a more appropriate default fund for the demographics of their plan, like a blanced fund, or an age based default fund that is determined by the age of the participant. This is a new, hot issue that many smaller plans have not been made aware of.
If you rely on your vendor or another third party expert to bring these types of nuggets to you, that may not happen. Remember to change default funds causes them to do more work and they don't really benefit much from it as far as new revenue goes. So, they may not be beating down the door to tell you about these issues. That is one reason to keep abreast of some of these hot button issue independently. The websites I mentioned previously are helpful for news on these issues. Here are the answers to some of the other questions people have asked me in PMs: * It doesn't matter when the plan year ends for the plan. You can convert the plan to a new vendor in the middle of the plan year. Since most plans are 12/31 plan year end, it is usually better to convert them during off plan year since the vendor is usually less busy during the summer. * You can usually become the broker of record on a plan without moving the plan to a different vendor. If you become the broker of record on the plan at the existing recordkeeper, you don't have to actually move the plan in order to get paid because you can take over the commission structure of the plan. All you normally need to do is sign a disclosure statement and a commission agreement with the existing vendor and the plan. If you decide to change vendors from here, you can still get paid from the existing vendor until you move the plan. This should decrease the lead time significantly that scare off many people from 401k plans.Akkula, good info. Thanks.
Let me give you my opinion on why a stable value fund should be the default. I understand that a balanced fund or an age-based fund over time should give better results. However, these are people who are being defaulted into a plan. Someone should never be defaulted into something than can cause them to lose money. These are typically non-investors. A non-investor who is defaulted and loses money will quickly go back to being a non-investor. Akkula, it's this kind of knowledge that you posted that can make you a valuable asset to the board.QDIA may be one of the following according to the DOL website:
http://www.dol.gov/ebsa/newsroom/fsdefaultoptionproposalrevision.html "A QDIA may be:Life-cycle or targeted-retirement-date fund;
Balanced fund; or
Professionally managed account."
The reason the law recently recognized the QDIA because too many people, particularly younger investors, were being defaulted into a stable value fund which is not an appropriate vehicle for long term growth. Target date funds where you get defaulted to the appropriate fund based on your date of birth in the recordkeeping system or a professionally managed account is actually the best alternative in my opinion based on the above options because they take into account some degree or the participant's characteristics. The balanced fund option is the easiest to implement because it is only one fund instead multiple funds that would be necessary with the other options.
Generally speaking, people shouldn't be defaulted at all. They should actually choose their own investments when they enroll. Commonly, people who get defaulted are people who get some kind of non-elective employer contribution, like profit sharing. Profit sharing is different from match because match requires a employee contribution in order to get an employer contribution. Typically, somone will have selected investment allocations when they are getting match but may not when they get profit sharing since they don't have to defer to get a profit sharing contribution. Furthermore, the QDIA has become more important because of the new automatic enrollment emphasis in the PPA. If you are going to automatically enroll participants in your plan, you need to make sure they are invested in an appropriate investment for their stage in life. Regardless of the how you feel about the best investment options, the DOL and congress has defined what a QDIA is and what it means to fiduciaries (additional protection against getting sued for investment losses).