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CNBC posted an article yesterday titled “Lousy 401(K) Plans May Spark More Lawsuits”…and we agree.  The Department of Labor’s new fiduciary standard – Which we wrote about HERE – has increased the scrutiny placed on fiduciaries to retirement plans, and that’s a big deal.

The article says this about the growing number of lawsuits in which employees have filed against employers: “…the cases usually center around excessive fees, poor plan designs and alleged conflicts of interest.”

Small business 401k plans, specifically business owners, take note!   Why? Because so many small business 401k plans (those with $10m or less) have excessive fees, poor designs, and are loaded with conflicts of interest.

The reason for this is two fold.

On one side, the industry has built solutions for small businesses that are loaded with inefficiencies and conflicts of interest.   They are designed with the provider’s revenue in mind…not the benefit of the small business plan sponsor and participants.   The providers of these plans (mainly insurance companies) may argue that point, but we see plans everyday that support our view.

The other side is on the plan sponsor.  Who provides your 401k to your business is  a decision that should be based on your fiduciary responsibility to plan participants – nothing else.  That’s a big contrast to how things typically operate, especially in the southeast, where relationships, even inefficient ones, rule the roost.

From a Fiduciary standpoint – a fee only structure is hard to argue with.  It’s the best way to minimize conflicts of interest.  The industry is shifting towards that structure, the Department of Labor is doing their best to make sure of it.  If your foot is firmly planted on the other side of the fence, I’m not sure that’s a battle you want to fight.

If you are a business owner, review your plan and understand what you have.  If adjustments need to be made – better to do it now than be forced to by an employee who has done their homework.

Here is the article about the lawsuits in the 401k space: HERE