Plan fiduciaries who may be relatively unaware of their fiduciary responsibilities in managing a qualified plan. Rather than engaging in a prudent process, many operate without a full understanding of their fiduciary duties under ERISA and, specifically, Section 404(c) of ERISA in order to protect themselves from possible personal liability.
Poor absolute and risk-adjusted returns of the investment options relative to industry benchmarks and peer group indices.
Lack of adequate diversification among the investment options.
Unsuitable and poor performing investments based upon quantitative and qualitative criteria, including risk/reward profiles.
Inadequate, or no, periodic review/monitoring of the investment options.
Mutual funds (or insurance company separate accounts) that have high costs as a result of above-average annual expense ratios, which may include one or more of the following:
- Front-end loads (sales commissions)
- Back-end loads (sales commissions)
- Annual 12b-1 fees
- Wrap fees
- Surrender charges (for group variable annuities)
- Mortality & expense charges (for group variable annuities)
- Market value adjustments (for group variable annuities)
An insufficient, or nonexistent, Investment Policy Statement.
High turnover of fund managers/lack of long-term manager tenures.
Certain group variable annuity contracts offered by insurance companies that provide meaningless tax deferral within an already tax-deferred qualified plan, often saddling plan participants with higher costs within the annuity’s separate accounts.
Use of mutual fund families, insurance companies, broker-dealers and other financial institutions engaged in one or more unethical and, in certain instances, illegal late trading and market timing practices from the early 2000’s.
Deficient ongoing communication to employees regarding the plan and its benefits.
No, or limited, ongoing employee educational seminars regarding topics pertaining to personal financial planning, including investments.
Not being proactive in managing the Plan for the best interest of participants.
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