Vanguard Does It Again & Other Updates

Recent developments affecting retirement plans – with our editorial comments:

VANGUARD REDUCES EXPENSES FOR TARGET DATE FUNDS.  Not exactly known for ripping you off, Vanguard found room to reduce the costs on their Target Date Funds by 2 bps.  Another great example of how they can provide a simple low-cost model and candid approach to investors of all tyeps.  By the way, if you happen to have $5 Billion, two of their funds only cost 1 bp.  I’m just sayin’. Read more here.

FIDUCIARY STANDARD MOVES FORWARD.  Probably.  Looking more and more like there will be a fiduciary standard in place for advisory firms that service employer based retirement plans.  This would mean, theoretically, that plan sponsors will receive a higher standard care from the firms that service them.  I get it and understand the motivation.  Broker/dealers are not happy about this and are battling hard to maintain a lower standard of suitability.  PlanVision is a fiduciary.  We stand to gain on this.  However, I think many, many fiduciaries overcharge and oversell.  I am not all that impressed.  

LAWSUITS ON 401K PLANS.  Mega plans are being targeted left and right.  Clearly, attorneys stand to gain a tremendous amount in fees so you can expect to see more of this.  It will definitely have a short term impact on large plans and eliminate much of the nonsense with retirement plan fee payments.  However, it will take longer for this to affect the small plan market.  Many smaller employers simply don’t understand the payment systems and the conflicts of interest that impact the structure of their retirement plan.

STATES PROMOTING THEIR OWN PLANS.   These efforts would target smaller employers and are designed to help make plans more affordable.  Yes, the states are getting in on the act.  We currently see many low cost options in this space and other technology firms invading as well.  I see how this could help bring down costs for small plans.  I am really uncertain, though, how the final product will look and how it will compare to employers’ current options.  From what I have read, some advisers are not happy about this.  Of course, I think far too many advisers overcharge for their services so I am not sympathetic.

FEDS TO PROMOTE A MEP (MULTIPLE EMPLOYER PLAN) OPTION FOR SMALLER EMPLOYERS. Similar to the idea on the states getting in on the market, the feds are promoting a method for smaller employers to join together in one plan and reduce the administrative costs of their plan. This could be a benefit, but I am simply not sure how it will look.  Also, as I mentioned above, there are already low cost plans for smaller employers using 401k plans or even lower cost Simple IRA’s. Ultimately, it will depend upon just how competitive a MEP offered through one record keeper would compare to the independent service providers.  I am cynical of large providers offering this platform to smaller employers.   I think they will use it as a means to reach many “consumers” and sell them additional products and services.  The financial services industry is relentless in pursuing distribution options for its overpriced products and services.

PLANVISION TO SPEAK AT MINNESOTA COUNCIL OF NON PROFITS.  Not quite national news, but we are looking forward to speaking at a conference for non profits in Minnesota on Thursday March 3rd. We are pleased that Jon Pratt of the MN Council of Non Profits has taken the time to learn more about our efforts to help smaller employers improve their retirement plans.  Non profits can learn the goals for a better plan and the steps they can take to make it happen.