When explaining why a 401(k) Exchange retirement program is better than ordinary 401(k), George Hunter, managing partner of Columbia-based Resonant Financial Management, offered the analogy of checking the oil in his son’s car, which his son didn’t do often. Or at all.
“He didn’t even know how to do it,” said Hunter. “It was two quarts low, so before he tried to pour it in from the dipstick shaft, I poured it in from atop the engine.”
Speaking generally, Hunter said that’s how most employers are with their 401(k) programs, too. “They have the fiduciary responsibility to monitor how they’re performing,” he said, “but in some cases, they just don’t follow up.”
That’s why he and fellow Resonant Managing Partner Wade Zancan feel that some employers need a 401(k) Exchange, a turnkey option that encompasses a variety of retirement management services, including administrative offload, simplified payroll contribution processing, fiduciary risk management and more. Participating in an exchange means a given company plan is managed by a team of experts, which in Resonant’s case includes Transamerica and TAG Resources.
“This is a group 401(k) plan,” said Zancan. “The pooled assets and resulting economies of scale make it extremely competitive. Let’s say you’re opening a new 401(k) for a startup. By having the assets pooled, pricing can drop up to 50%.”
The difference is that each company with an exchange has its own plan. “That means a company in Columbia can offer its employees a 3% safe harbor plan and profit-sharing,” he said, “while another company in Odenton in the same pool might skip the safe harbor and the profit-sharing, but use auto enrollment and have a vesting schedule.”
Christopher Schutz, regional vice president, retirement plans for Transamerica in Baltimore, launched the 401(k) plan with Resonant. He said the appeal of the approach is that it offers “the highest level of fiduciary protection of any retirement plan,” as well as the reduction of 90% of administrative duties.
“The economics of scale make the pricing very competitive,” said Schutz, adding, “Regardless of plan design, they offer complete flexibility for the employer.”
The plan that Resonant offers is a typical multi-employer plan and Transamerica “has been a leader in this space,” said Zancan. “A typical MEP has only one planned document, but this way they can be tailored to each company in the group.”
He added that the traditional approach on the company side with the traditional 401(k)s and original multiple employer plans is ‘out of sight, out of mind.’ They traditionally cost 2% of assets of the plan or more. But as time goes on, the employees don’t discuss it, nor does the boss.”
Opting for the exchange solves that issue because it provides a number of fiduciaries whose roles are defined under federal law, including a 3(16) fiduciary, which functions as the plan administrator and keeps the plan compliant with law; and a 3(38) fiduciary, who has full discretion to manage the investment choices on a quarterly basis, review them and replace failing funds when necessary.
In short, “You can feel more confident that the annual reviews with the employer and the employees will be done,” said Vasilios Peros, principal and founder of the Law Office of Vasilios Peros, in Baltimore, “and the various necessary duties will be performed by a professional in their respective fields.”
But that’s a burden for many employers. “They don’t know what they don’t know, and many businesses don’t have the staff to stay abreast of a plan’s performance,” said Hunter. “In addition, many small-to-medium-sized businesses don’t know that this relatively new option exists.
“While a small-business owner might feel that the plan they have meets their requirements,” said Hunter, “but once they check the oil, they might find that its time to make a change.”