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How to avoid 401(k) liability


Employers can take action now to avoid liability in the future concerning monitoring and disclosure of fees associated with their 401(k) plans, observers say.

Experts say they expect changes in reporting rules given the increasing scrutiny the issue is receiving from regulators, legislators and the plaintiffs' bar. Experts advise employers to determine the fees and expenses charged to 401(k) plans, compare them to others in the market and periodically review their plans' fee structure.

"I don't think this is an issue that's going to go away," said Gregory L. Ash, a benefits attorney with Spencer Fane Britt & Browne in Overland Park, Kan. "It's got too much traction already. Things are going to change, and it's always better to be ahead of the change curve rather than behind it."

Do not wait, advised Michael Weddell, a principal in Mercer Human Resource Consulting's Detroit office. "Even though the rules are in flux, it makes a lot of sense for plan sponsors and other fiduciaries to actively measure and benchmark their fees today, and not wait around for new rules."

David Wray, president of the Profit Sharing/401(k) Council of America in Chicago, said plan sponsors "need to know what their fees are and how their fees are determined, and they need to have gone through some process which permits them to evaluate" if the fees are reasonable. "Then they need to have that documentation in writing."

Mr. Wray said such reviews should be done periodically.

Robert Liberto, senior vp with Segal Advisors in New York, said plan sponsors go through the due diligence process initially, but may fail to renegotiate a better deal despite increased plan assets in later years that could entitle them to a fee reduction.

Plan sponsors should review administrative fees and expenses annually "to make sure they're in line" with what others are paying for similar services, said Mr. Liberto.

Terri W. Vaughan, vp and practice leader for the defined contribution practice in Aon Consulting's Winston-Salem, N.C., office, agreed. "The market changes," she said. In a year, a plan "may be in a position to command better service for the same price, or a lower price for what they're paying today."

Employee communication is also critical, say observers.

Ms. Vaughan said she is already "seeing more and more employers making that information easier to understand, (and) asking their vendors to make it easier to understand."