The Situation

In the spring of 2007, the largest employee benefits law firm in the State of Michigan, with over 400 employees, issued a competitive Request for Proposals for a fiduciary adviser to:

• Serve as a Plan Level fiduciary (ERISA 3(21))

  • benchmark their current 401(k) service provider (services & fees)

  • assist in the development and implementation of an Investment Policy Statement (IPS)

  • assist in a service provider search, if necessary

• Serve as an Investment Manager (ERISA 3(38)) with full discretion over the investment offering

  • benchmark their current investment offering (performance & fees)

• Provide a higher level of investment assistance to its employees

  • customized, one-on-one advice

The overall goal was to improve the quality of the investment offering and reduce costs (fee calculation methods and level). Lastly, they wanted to provide employees personalized investment advice.

The Approach

The service provider was compensated 100% through revenue sharing. We believe the foundation of a prudent fiduciary process is identification and understanding of all services (necessary) and fees (reasonable) associated with a retirement plan. 

We separated the cost of the investments from the cost of provider services by introducing an investment menu with virtually no revenue sharing. We negotiated a fully transparent flat fee for record keeping & custody services. A few years later, the Firm conducted a service provider search and chose to stay with the existing provider.

Lastly, we conducted one-on-one consultations with participants providing specific savings and investment advice. Participants generally fall into one of two categories 1) self-directed or 2) tell me what to do.  The “tell me what to do” category represented a large percentage of participants. As a part of the investment menu, we constructed five risk based model portfolios using funds offered in the Plan’s core investment offering ensuring the underlying funds are subjected to the same rigors as outlined in the IPS.  

The Result

We have strengthened the investment menu, which is measured quarterly both objectively and subjectively at the peer group level, through strict discipline with the IPS. 

The retirement plan fees have been reduced by 45% while the plan assets have doubled. In the first five years of our relationship, the cost savings exceeded $1,500,000. Over that same period, the percentage of participants invested 100% in the money market fund decreased by 72%.