Two years ago, I had the worst call with a prospective client in the 14 years I have been an ERISA attorney.
Without divulging any information about this prospective client, this 401(k) plan sponsor was like many prospective clients, poor participation and paying too much in fees. The plan sponsor was using a reputable provider, but a provider that would be a better fit for plans 10 times their size. Client was paying $100 or so a head plus what looked like an additional 3% in an asset based fee. Clearly, this is a plan that is paying way too much.
Why the call was such a disaster was because the person on the call was the one who designed the program with this expensive provider and he basically stated that he had absolutely no interest in changing providers, Funny, the call with the interested advisor was not concerned with changing the third party administrator at the time because you can always have the discussion with the current provider bout reducing. I am provider neutral, heck if the current third party administrator is charging a decent fee and doing a good job, I have no issue with that. You’ll be surprised to know that I still had a couple of clients being serviced by that former employer that I had always railed against.
So why was this underling in the human resources office so serious? Well, if he designed the program and we have issues with its cost or poor fund lineup or poor participation, he is obviously going to take any criticism as an attack. While plan fiduciaries don’t necessarily have to change their providers, they certainly have s fiduciary duty to check whether fees being charged are reasonable or not.
I know what I know in life, but if I made a technology decision or a financial decision that an expert may question or offer suggestions for it, I’m not going to take offense. But then again, I’m on my own boss. So if we are a plan provider or a plan sponsor’s decision maker, we should understand that sometimes people are so resistant to change or just considering so constructive criticism, because they get defensive as if there job depends on it and maybe it does. That is why we should always consider who we contact about looking at their plan and doing a review.
Post script: Two years later, the human resources officer was no longer there and they finally opted to change all plan providers, but did not use the advisor that was initially on the call. The ERISA attorney who drafted the plan? Yours truly. Sometimes, you need a change in the decision makers to get the right decision in changing plan providers.