Ksu93dlv wrote:

- quote -

I come from a different perspective and market than the one
that Brent generally works. One key caveat is that the
world of qualified plans is a bit different in Arizona and
Southern California than the rest of the country, based
primarily on the awareness level among "generalists" in law
and tax practice.

That said, employer costs are a significant issue that
generally enter into this matter. And there are a number of
compliance issues that have to be dealt with. Either you
need to spend quite a bit of attorney time getting up to
speed on ERISA and IRC issues related to qualified plans, as
well as dealing with detailed compliance issues (none of
which will make much sense unless the law firm specializes
in plans--and even then the compliance skills probably don't
make sense to spend attorney time on), you need to hire it
out (and pay for it) *OR* you risk a whole slew of problems,
including loss of plan qualification, significant
liabilities for penalties and liability to the plan
participants.

However, I would somewhat disagree that going with a
"turnkey" plan is going to fully insulate an employer from
these problems. ERISA imposes a requirement that the plan
be operated primarily for the benefit of the plan
participants once an employer decides to set up a plan. The
Department of Labor has indicated that this means an
employer has a *explicit* requirement to consider the amount
of fees being paid and whether the method being used to pay
the fees is the best option for the employee. Thus, I would
suggest, an employer needs to at least have looked at
"outsourcing" these matters on a fee basis and comparing
that with the effective costs being imposed by the "captive"
investments (since, as you suspect, that's where the costs
are being paid).

As well, not all turnkey plans are created equal and you
need to carefully check to make sure that all compliance
issues are covered with the turnkey plan. That includes
annual filings of 5500s, 1099 reporting, notices to
employees, skilled consultation on who is or isn't covered,
etc. In many cases, turnkey plans "turn over" these
functions to the employer--so I would suggest being sure you
have someone involved who understands the entire set of
compliance issues.

Now, that said, one practical issue is that an employer
doesn't have to offer a plan. So while it may be possible
that it can be shown that the current plan doesn't meet the
"for the participants' benefit" test, the key alternative
that eliminates liability is to get rid of the plan entirely
<grin> .

As well, even if the "unbundled" fees would be lower, there
are some real problems with getting those paid by the plan
participants (though that's clearly allowed). One quirk
with unbundling is that it's going to be a lot easier for
participants to see the costs <grin> , and complaints may
actually go up.

--
Ed Zollars, CPA
Phoenix, Arizona

"Ksu93dlv" <ksu93dlv[at]aol.comAntiSpam> wrote in message
news:20031117151917.28548.00000402[at]mb-m11.aol.com...
- quote -

Small plans have higher expenses, and I suspect that without a rep
soliciting the plan, none would exist. That's how most plans are created -
someone solicited the business owner and sold the plan. They deserve to get
paid.

- quote -

What you just stated makes little or no sense whatsoever.

First, more than half of all qualified plans are funded with Group Variable
Annuities. With an extremely rare exception, they don't have A or B shares.
If there are share classes, you are mostly likely using mutual funds as the
investment vehicle in the plan.

Second, an annuity is NOT a life insurance policy. I am shocked that an
attorney might make such a mistake of this magnitude. An annuity is the
opposite of life insurance.

- quote -

The ABA plan may not cater towards small groups. Most plan providers don't.
It is a niche market, rarely profitable at the low end of the cost spectrum,
which is why it is totally dominated by commissioned sales reps who use
mutual funds with sales charges and group variable annuity contracts. Among
the larger employers, GVAs remain popular because they are often more cost
effective and have benefits not available outside the annuity contract
(i.e., fixed accounts, competitive annuity payout options, defined benefit
packaging discounts).

- quote -

If your understanding exhibited so far is all you've come up with, a LOT of
homework on your part is in order. I have sat in on meetings where employees
with more knowledge presented alternatives to my clients - the decison
makers. I have never lost a case this way and several promising employees
were seconded out for wasting the boards time.

Here's some things you need to consider:

Costs matter not, absent a thorough and complete discussion of the value
derived for the consideration exchanged. A lawyer, of all things, should
know that good advice ain't free, and you get what you pay for. IRC Sec.
404(c) compliance isn't a small matter, especially among smaller employers
where liability is virtually unlimited. As an attorney, you should WANT to
do everything you can to limit your personal liability. Many small
employers, upon learning of their liability, fully and completely dismiss
the No Help plans offered sans advice.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

First a little background: I am an attorney and every firm I have ever worked
for has had an employer-sponsored 401k program through American Bar Association
Retirement Program, which is managed by State Street Bank. For anyone
unfamiliar with that program, it has no loads and very low annual fees compared
to industry averages for the various funds offered.

I recently started working for a small firm (total of 4 employees, including
our receptionist) that has its retirement program through Northwestern Mutual
Life Insurance Company. I met with the rep who handles our firm's accounts last
week and was shocked to learn that, of the 24 funds available to our employees,
all are either A shares or B shares, meaning there's a front load or back load
(he recommended B shares). To make matters worse, the annual fees are insanely
high - over 2% for an S&P 500 index fund, which isn't even a managed fund!
Other funds are even higher, with some almost 3%.

It appears that our program is actually selling variable annuities and that
it's not a 401k at all. The high expenses come from the fact that we're paying
1.81% annually for insurance charges on top of the normal portfolio charges.
I've read the prospectus several times to try to decipher exactly what we're
being sold and as best I can tell this is basically just a big life insurance
policy, which I don't need because a couple years ago I decided to purchase
enough term life insurance for myself and my wife so we'll be covered if
anything happens in the next 30 years (well, 28 years now).

Anyway, it seems to me that we're getting totally screwed with this plan, when
what we really need is a good 401k program. Which brings me back to the ABA
program. There are no costs for the employer and the average expense for the
various funds is .64%. There are also no out-of-pocket expenses for employees
because all costs are rolled into those expenses.

It seems obvious to me that switching to the ABA plan makes by far the most
sense. Am I missing something here? I want to be informed when I go to the
higher-ups with my conclusions and recommendations.

Thank you in advance for your help.