Open Architecture 401(k) Roundtable Reveals Industry Trends

DENVER, May 10, 2012 /PRNewswire/ -- New 401(k) fee disclosure rules may spark participant protests and squeeze service provider margins, according to attendees at the semi-annual Lincoln Trust Retirement Plan Advisor Forum.

The event was hosted last week by Lincoln Trust Company, a leading provider of open architecture 401(k) and profit sharing solutions.  In addition to fee disclosure, advisors aired their views on a variety of industry topics, from 401(k) benchmarking services, to ETFs in 401(k) plans, to proposals on Capitol Hill that eliminate tax benefits for 401(k) participants.

"Advisors are at the forefront of the retirement industry and we value the insights they bring to our forum," said Tom Gonnella, senior vice president of corporate development at Lincoln Trust. "Our industry faces new challenges in 2012. Getting input from our partners is helping us develop the next generation open architecture 401(k) plan solution, which allows financial advisors to maximize the service level they provide to plan sponsors and their participants."

Long-awaited Department of Labor 401(k) fee disclosure rules kicked off the discussion.  The rules will go into effect July 1 for plan sponsors and October 1 for participants and are designed to improve fee transparency in 401(k) plans. While advisors believe that plan sponsors are "on-board" with the new rules, they fear that participants may react strongly to the new information – particularly if 401(k) investments are down. 

"If the stock market is falling when these rules go into effect, our plan advisors said 'watch out,' because a bad market will spur participants to take an even closer look at their statements," said Gonnella. "The last thing investors will want to see are high fees eating away at their retirement assets."

Plan advisors also addressed proposals – from both Democrats and Republicans – to introduce legislation that would reduce or eliminate the tax benefits of saving in 401(k)-type plans. "We heard more than once from our advisors that this would be disastrous for American workers and the 401(k) industry," said Gonnella. "At a time when Americans face daunting obstacles to achieving a rewarding retirement, we should not be reducing or removing one of the best incentives to save for retirement."

Other topics included:

• ETFs in 401(k) s: While ETF assets have grown significantly outside retirement plans, they have failed to catch fire in 401(k)s, in part because their tax efficiency is lost in the plan structure.
• A no-confidence vote on target date funds: Unlike ETFs, target date funds are rapidly gathering retirement plan assets. That said, Forum advisors said they preferred managed models or other default investments to the target date funds and were skeptical about how target dates would perform in the future.
• Benchmarking benefits and pitfalls: Plan advisors said that while benchmarking can be a powerful tool to illustrate fees, current offerings are limited in their ability to measure the full value of plan services Additionally, there is not one provider of these services that has taken the lead in the industry on developing what is truly needed by those servicing the industry.  

About Lincoln Trust Company

Headquartered in Denver, CO, Lincoln Trust provides trust, custodial, recordkeeping and administration services to open architecture 401(k) plans and other defined contribution plans. By providing access to 24,000 mutual funds and 900+ETFs without any proprietary product requirements and by using all revenue sharing payments to offset plan expenses, Lincoln Trust is able to offer low cost 401k plan solutions to advisors and plan sponsors in the small and mid-size plan markets. In 2011, Lincoln Trust introduced the Personalized Expense Ratio (PER), the first – and one of the retirement industry's most precise – all-in 401(k) plan cost calculations. Available exclusively on the Lincoln Trust 401(k) platform, PER is intended for participants, plan sponsors, and advisors to see the actual cost of their plans without having to perform calculations themselves. The new Lincoln Trust enhancement was designed to go beyond the Department of Labor's  (DOL's) recent revisions to 408(b)(2) and 404(a)(5) reporting requirements. For more information, visit www.LincolnTrustCo.com or call 1-855-719-5796.

SOURCE Lincoln Trust Company