George Vitta, President, Asset Strategies Portfolio Services

George Vitta, President of Asset Strategies Portfolio Services, Inc.

Defining Issues in Defined Contribution/Deferred Compensation Plans

During a recent speech to a large group of plan sponsors, George Vitta touched on a number of issues facing employers who provide defined contribution plans (401(k), 401(a), 403(b) and 457). While approximately one-half the presentation touched on subjects ranging from the importance of investment committees to creating an investment policy statement, the other half of the speech addressed the growing focus by regulators on how employers monitor and control the costs of these benefit plans.

“When average account balances were small, employers could more easily ignore the issue of plan costs. No longer the case today as account balances have mushroomed, and participants pay for the majority of a plan’s costs in the form of asset-based fees. Many participants don’t recognize that they are paying the costs of their plan. Some of the misunderstanding and lack of concern is due to the strong investment returns of the 1990’s, but a great deal of responsibility lies at the feet of the service providers. The ways in which they package and price their services is often confusing and not totally transparent. This is particularly evident at the small end of the market (plans with less than $50 million assets).”

We are encouraged by the discussions on transparent and total fee disclosure for defined contribution plans, which is taking place in Congress, at the Department of Labor, the Employee Benefit Research Institute, and plan sponsor forums. Even some investment companies like Vanguard, Putnam and T. Rowe Price, to mention only a few that have made public statements on this matter, are being pro-active and taking leadership roles in correcting this serious and “costly” issue.

The following web-link is to a brief but highly informative article published on 6/10/10 by MarketWatch contributor, Robert Powell. Powell has covered consumer financial issues for 20 years and is the editor of Retirement Weekly. http://www.marketwatch.com/story/fee-disclosure-is-coming-to-your-401k-2010-06-10

Asset Strategies Portfolio Services, Inc.  2635 Lapeer Rd, Auburn Hills, Michigan 48326 | Phone: (248) 373-9900