Publications

Critical Facts on Self-Directed Retirement Accounts

By Donald E. Favata, Geller Group Ltd.

There has been a dynamic change in the 401(k) service model available to plan sponsors. The paradigm has shifted toward and in favor of an arrangement where an employer may choose among thousands of mutual funds and a self-directed brokerage account option as a result of the technology and cost efficiencies available in the marketplace.

The range of services multiple fund products and specialized servicing for asset classes like company stock or a brokerage account option. The new 401(k) model includes a full service benefit consulting firm with a flexible product line that is seamlessly integrated for delivering administrative and investment advisory services to the plan sponsor.

The best vehicle for long term growth is a 401(k) tax deferred savings plan. Plan participants need a range of top performing fund options representing different asset classes and investment styles. Employers need to monitor inconsistent or under-performing mutual fund choices. ERISA requires that employers fulfill their fiduciary responsibility by providing sound investment choices to their employees. Plan sponsors may not rely on mutual fund brand name recognition, and therefore forgive poor performance.

Many defined contribution plan sponsors permit plan participants to direct the investment of their account balances within a predetermined mutual fund menu or in a brokerage account. An individual or entity responsible for plan investment decisions is subject to ERISA's fiduciary standards. Plan fiduciaries must exercise care, skill and prudence in selecting as well as monitoring plan investments. ERISA Section 404(c) provides limited protection to plan fiduciaries.

Changing 401(k) providers results in the suspension of a participant's right to switch their investments during the conversion so that accounts may be valued and transferred over to the new program. The period of suspension is called a "blackout period". No rules specifically govern black-out periods. ERISA Section 404(c) would not apply during the black-out period since participants would not be directing the investment of their own accounts. Nevertheless, if the black-out period is short, carefully planned and properly executed, and plan participants are notified of the proposed transfer of plan assets, it appears that plan sponsors may limit their liability

Geller Group Ltd. are benefit consultants and registered investment advisors providing integrated and cost effective solutions for 401(k) plan sponsors. Donald E. Favata, Director of Investment Advisory and Employee Communications Services, is a Certified Financial Planner and Registered Investment Advisor responsible for employee communications and investment education. New York, NY - 212-268-5700 Mr. Favata direct: 212-655-0352