What makes a good 401K failure case?
- Catastrophic Failure of Plan Sponsor—Bankruptcy, Embezzlement or other Fraud.
- Fund options do not make economic sense:
- Line-up of fund choices limited to proprietary fund;
- Company stock is a big portion of 401K investment;
- High expense ratios in fund choices;
- Fund choices lag market benchmarks on either gross or net basis (before and after net expenses).
- Close personal or business relationship between owners of plan sponsor and Financial Advisor:
- Weekly golf game between Financial Advisor and Owner of Plan Sponsor
- Common investments—real estate, boats, planes, etc.
- Family relationship
- Service on local charities with plan sponsor—the Stanford Financial Model—give it away and then take it back.
- Feel Good letter from Compliance Officer—are you sure everything is ok? (we don’t think it is, but wanted to pass the liability offer to you, the plan sponsor).
- The higher the gross expenses the better, particularly if not completely disclosed (and no plan has complete disclosure—at least none that I have seen, including mine). Do not distinguish the recipient of the fees—joint and several liability is a good thing.
- Delay in Employer/Employee Contributions—someone is sitting on the money—an objective fact, look at the calendar.
IMPORTANT: Submitting this form does not create an attorney/client relationship.