At Bodtke & Stewart we pioneered the fee based pension consulting business. We found time and time again, the representations and the services offered by commissioned consultants, simply left our clients bedazzled and confused.
It was not so much what they said, it's what they did not say! It was not so much what they did, it's what they didn't do!
Worse, the owner/shareholders accustomed to protection as corporate officers, were fiduciaries
personally liable to plan participants for the actions (and inaction) of others. It seemed when the investments went up, the participant's benefited. When the investments went down, the participant's benefited (by claims against the fiduciary.)
Along the way, we discovered some nifty ideas to make plans more liability proof, how to conduct proper due diligence, how to get that diligence documented in writing, and how to test those representation's veracity. We also discovered some ways to increase benefits for the truly deserving, lower turnover, and lower plan cost tremendously.
Key Issues in Fee-Based
||The dirty little secrets is: "The money is in the money!"
||You have an obligation to know those costs to the plan.
||Failures to perform even ministerial acts are very expensive.
At Bodtke & Stewart, we have been performing independent plan administration and fee-based consulting for over twenty years. We are members of the International Foundation of Employee Benefit Plans and a member of the International Society of Certified Benefit Specialists, and we do not (and will not) work on a commission basis.
This objectivity enables us to provide fiduciaries and participants with
Ninety percent of the difficulty in plan administration result from poor plan design. When filing
out a "plan formation or restatement checklist", certain things that appear to be a "good thing", but lead to serious issues if not well thought out. For example, the anti-cutback rules state once a benefit provision is in place, it cannot be removed. In any plan restatement or transfer, you must be certain you understand this rule. In another example, in an original plan adoption, you must realize that many of the decisions you make "by checking the boxes", are irrevocable and bind you forever, unless you wish to terminate the plan and not adopt another for a very long time.
Investment Vehicle Selection
Ninety percent of the performance based investment issues result from poor investment vehicle selection. Usually, plans start out small and require very much service, but as they grow the fees on are not characteristic of the effort required to properly run the plan. Further, front loaded, back loaded, or high daily asset charges create a drag on performance, and serve as a big stick in keeping the plan in an investment vehicle (no matter how expensive a drag), for eight to ten years. Use an experienced fee-based consultant to read the prospectus and understand what you are getting your participants into, before your options
are eliminated and you sign the contract. You are not going to get a free lunch, but your not buying lunch forever either.
There is a great deal of responsibility in maintaining and running a qualified plan, and a great deal of liability as well. First, you should insist on adequate fidelity bonding and liability coverage on yourself by your company. This bonding and liability policy should be in place, prior to signing any contracts. Second, you are the fiduciary, and the plan administrator is your contractual service provider. That means you get the liability, and he gets
the work. He can quit his job, but your stuck with the liability for a long time. There is a great debate on bundled service providers that provide incredibly inexpensive plan administration, provided you buy your investments with them. However, what you want is service after the sale, and what they want is another sale. Understand the fee situation completely, and use a reputable provider who services after the sale.
If you would like assistance in independent fee-based pension consultation, please contact us.
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