Data & Research February 22, 2011

Participants Benefit from Advice, Survey Shows

The sampling size was small, but a recent survey found that participants who got financial advice held more funds and enjoyed a higher rate of return than those who didn’t.
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The study of 401(k) participants at twelve Midwest mid-size firms conducted by Francis Investment Counsel found that participants who received financial advice held an average of 8.67 funds versus 4.98 funds for those who did not receive advice.  In addition, those who received financial advice achieved a 3-year annualized rate of return ending 6/30/10 that was an average 2.67 percentage points better than those who did not receive advice. 

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Moreover, the average account balance for participants who utilized financial advice was $107,558 vs. $44,178 for those who did not.  Francis Investment Counsel LLC, a fee-only registered investment adviser (RIA), retrieved personal rate of return and number of funds held from recordkeepers, the company reported.

“This survey demonstrates that face–to-face, one-on-one advice has a meaningful impact on participant returns,” said Kelli Send, Senior Vice President of Francis Investment Counsel LLC.  “As companies seek ways to help their employees better prepare for a comfortable retirement, this study suggests offering personalized education and advice is effective.”  

The twelve Midwest mid-size firms included in the study represent more than 7,400 plan participants.  Of these, a random sampling of approximately 25% of plan participants maintaining account balances was drawn for the survey.  These individuals were split into two study groups: those who had used Francis Investment Counsel one-on-one participant advisory services and those who did not.  

Compliance February 22, 2011

ASPPA Requests Audit Relief for 403(b)s

ASPPA and a group of 403(b) plan professionals have renewed their appeal to the government for additional relief for 403(b) sponsors struggling to meet new compliance requirements of Form 5500s.
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In a statement sent to the Department of Labor (DoL), Craig P. Hoffman, General Counsel and Director of Regulatory Affairs of ASPPA, noted: “For the first time since ERISA was enacted, certain 403(b) plans were required last year to file an independent audit report with their Form 5500. Because of the way 403(b) plan contributions are invested, plan sponsors had and will continue to have significant difficulties with the financial statement requirements. Sponsors are doing their best to meet the new DoL mandates but are struggling and facing staggering expenses which they cannot afford.”  

Members of ASPPA and the National Tax Sheltered Accounts Association (NTSAA), a division within ASPPA made up of 403(b) plan professionals, report that the required audit costs are sky-rocketing (often $50,000 – $100,000 per plan) and the plan sponsors simply don’t have the money to cover these expenses.   

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Hoffman explained that often 403(b) plans are required to have costly full scope audits because of an auditors’ lack of familiarity with a 403(b) plan or because some vendors are unable to offer the limited scope certification needed to avoid a full scope audit. “Plan fiduciaries often cannot resolve these problems because they do not have the authority to direct participants to transfer the funds to another provider or surrender the contract. In effect, the plan is stuck with the contract unless the participant takes action,” Hoffman said.  

NTSAA and ASPPA’s recommendations for transitional relief include: 

  • Opening Balance Relief: Accept the financial statements of the employer based on the documented good faith effort and only require an auditor’s opinion for financial activity for the current year, assuming a correct opening balance. This would be consistent with similar transitional relief that was provided when ERISA was first enacted. 
  • Disclaimed Audit Relief: Issue a rule to ensure the audit will provide useful information to fiduciaries, the DoL, and participants while substantially reducing expenses. If an auditor is unable to issue an opinion because of the limited scope exemption, or where a limited scope cannot be formed because of the lack of a vendor certification, the groups suggest the auditor opine on the business controls of the plan sponsor or other financial matters of the plan. 
  • Develop 403(b) Plan Auditing Guidelines: Form a committee of industry experts to suggest, review, and modify existing audit guidelines. 

The groups first made their request for audit relief last October (see “ASPPA Demands 403(b) Form 5500 Relief“). 

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