A regulatory tsunami is headed toward companies sponsoring 401(k) plans. it will arrive next year when new federal rules take effect, creating an unprecedented burden of accountability for employers.

More than ever, employers will be required to assure that fees associated with these plans are reasonable for the services being provided. to do so, they should move expeditiously to determine and evaluate all plan fees.

Employers are already required to exercise this due diligence by the Employee Retirement Income Security Act of 1974. Yet the fees charged by large financial institutions providing 401(k) plans vary widely and are extremely difficult for employers and employees to ascertain. many aren’t aware that their fees may be too high because, until now, the government hasn’t required plan providers to voluntarily disclose all fees.

Nevertheless, by entering into arrangements with plan providers that involve unreasonably high fees, many employers have been failing to protect participating employees as required by ERISA. to remedy this lack of compliance and to help employees make more informed investing choices, the U.S. Department of Labor has issued the new rules, which reinforce and expand employers’ existing responsibilities as plan sponsors.

Effective in 2012, these rules will open up new terrain for potential federal fines — as the DOL is substantially increasing its investigative staff — as well as lawsuits from employees. this liability stems from employers’ role as plan fiduciaries, a regulatory/legal status meaning that they must consistently put plans’ and participants’ financial interests ahead of their own.

The new rules require plan providers to disclose fees to employees in chart format in quarterly statements. currently, these statements show investment returns net of fees, so employees don’t know how much they’re paying plan providers or investment companies that supply products for their plans.

Though the rules require plan providers to disclose fees in an easily understandable format, there are indications that the revised account statements may turn out to be long, confusing documents — something on the order of a prospectus. Confusion will ensue, and employees will queue up at HR to ask what it all means.

After making sure employees understand the newly required disclosures — which is, itself, a fiduciary responsibility — employers will undoubtedly be lambasted with bitter complaints from employees who were unaware of the amounts of fees being deducted from their accounts and others who simply thought their actual investment returns were lower.

Accordingly, it’s imperative that employers act now to “X-ray” their plans or engage a qualified consultant for that purpose, so they understand precisely what fees are being charged for the services being provided. this will involve reviewing reams of plan documents and confronting plan providers to ascertain fee information.

But that’s only the beginning. The tsunami’s force is amplified by the “reasonableness” requirement: how can employers know whether fees are reasonable?

To do so, they must determine where their plans’ fees fall relative to industry norms, so employers must benchmark fees against the full spectrum of the national market for plans of the same size providing the same services. These data-intensive comparisons can be highly complex, especially for small firms that lack the necessary expertise in-house.

The new rules also put increased pressure on sponsoring employers to assure that anyone advising 401(k) plans or participating employees is a fiduciary. ERISA rules have long prohibited non-fiduciaries, including brokers, from advising employees on the suitability of specific investments — a scenario rife with potential conflicts of interest.

Yet, because of lax enforcement that the government is now trying to repair, brokers typically play a dominant role in servicing 401(k) plans. By contrast, fiduciaries — who must avoid even the appearance of conflicts — must comply with stringent regulatory standards that don’t apply to brokers. Moreover, fiduciary advisors are subject to substantially greater legal liability.

Hence, the new DOL rules require employers to determine whether plan consultants are fiduciaries. If they aren’t, fiduciary responsibility — and liability — for the plan resides with the employer.

Companies that proactively get out in front of the tsunami by lining their corporate doorsteps with due diligence sandbags will minimize the damage. they have no time to waste.

Anthony Kippins is president of Retirement Plan Advisors LLC, a Cincinnati-based financial services company that provides retirement plan fiduciary services and employee benefit solutions to small companies. he is an Accredited Investment Fiduciary Analyst.

I have an existing traditional IRA and two 401k's from previous companies. I'd like to consolidate accounts.

Is there reason I should roll the 401k's into a rollover IRA instead of directly into my existing traditional IRA?

Are there any consequences regarding maybe later converting the IRAs to Roth IRAs later?

The traditional IRA was funded with after-tax money. so, when you withdraw at retirement, you pay taxes on only the added value of the investment, not the money you initially put in.
You create a rollover IRA because this will have your 401K money which is pre-tax money. when you withdraw, you pay income taxes on all of it.

I'm going through this now, so I've done all the research on it.

Dow Jones Industrial Wipes Out 2011 Gains, Your 401K and Stock Portfolio could have Been Spared By a Hedge

 You've worked hard to advance your career or build your business.  You've worked even harder to save for your retirement.  Yet when it comes to protecting your savings, you only work hard on finding the biggest investment firm/advisors and hand them your money.  You feel safe because you are working with one of the biggest names in the industry.  You've been working with them for sometime and do not want to change because you are afraid to loose the little attention you get from the licensed broker.  if you are in a city like New York, you even feel privileged that they accepted you as a customer. 

It is markets like these that make you question your relationship with your investment firm and your broker's knowledge.  most of the brokers in these firms are working really hard to sell you the highest profit margin item on the shelf without violating any laws.  when the market goes up, they know that you will be a happy client.  when the market goes down, their only defense is that market will bounce back and that you should invest more now.  Sounds familiar?

While I am not an equity broker, nor am I trying to compete with your stock broker, I am disgusted by this casual attitude about protecting your savings.

Most of us in the financial field know for a fact that the only certain thing in the coming years in uncertainty.  as of now, no one can predict if the economy will improve or worsen.  What we know for a fact that in order not to miss out on a rebound, we need to remain invested. 

However, being invested alone is not enough!  One's investment needs to be protected.  Your portfolio needs to be hedged!

I challenge you to email me and inform me that your broker suggested that you hedge your portfolio using options.  I would be very surprised if 1 per 1000 of these brokers even knows how to hedge a portfolio using S&P and Dow Jones Futures.  if your broker did not advise you on hedging your portfolio, give him a call and ask him the following questions:

1- why is my portfolio down by this much?  He will probably tell you that the market is down by this much.

2- Ask him what is the correlation between my portfolio and the market, Dow or S&P?

3- why in the world did you not advise me on hedging my portfolio using S&P or Dow Jones puts and put spreads? 

Using a hedge, one could have substantially lessoned the impact of last week's move by paying a little insurance premium and buying put spreads.  the concept is simple, like home insurance protects your home against a catastrophic event; put options protect your portfolio against systematic risk, a drop in the entire market.

To establish a hedge, you need to determine the following:

• 1- the correlation of your portfolio to the market.
• 2- how much protection do you need, that is your hedging/risk policy.

Once you have answered these questions, placing the hedge in the futures market is easy.  if your portfolio is $250K or more, and would like to know how you could hedge against a downward movement in the market while keeping your upward profit potential uncapped, give me a call at 212-383-9453 or email me at with the best time to contact you and a bit of color about your holdings.  Do not forget to email me your broker's response to the above questions!

I've heard that if you are on unemployment and take money out of your 401k, that it will affect your unemployment because 401k counts as income. I would like to empty the money in my 401k but I don't want it to affect my unemployment. Does anyone know if this is true? I live in Michigan if that makes any difference.

You heard wrong. However, there are very real income tax and penalty impacts.

I have a target retirement fund for all my 401K money and it's down right now. If I keep adding money does it buy more shares of it so when the price goes up I do even better?

It's never a bad idea to keep contributing to your 401k. If you feel so nervous about the economy or stock market, just keep stocks less than 40% of your portfolio. Try to diversify your investments across a broad class of stocks and bonds. oh, and don't buy company stock offered by your own employer; if the company collapses, then your savings will be wiped out.

If you already have money in, then "stocks are down" 8^(

If you're looking to put new money in, then "stocks are on sale" 8^)

It is always a great time to contribute to your 401K. Stocks are on sale right now, you get more shares per dollar. just keep it slow and steady.

5 years from now you'll be very proud of yourself! Keep on adding regularly!!!!!!

Buy at the bottom

ever heard of the 2000 crash

wiped many out

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