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Small Plans Reluctant to Act

While larger plans (1,000-plus participants) are using the fee disclosure regs to reduce costs and improve plan design, smaller plans are reluctant (free registration required) to make changes, according to insights from Towers Watson — even when their advisor recommends them — causing some to worry about their fiduciary liability. Smaller plans don’t have the staff or sophistication to make the changes, even if they could save money. They’re less likely to act because of several factors, including:

• administrative difficulties and the amount of time needed to make changes (especially for switching record keepers);
• the possibility of straining relations with their current provider, especially if they offer proprietary funds; and
• the reality that participants pay all or most of the costs.

Are plan advisors liable if they recommend an opportunity — for lower share classes, for example — and the client doesn’t act? According to Drinker Biddle’s Brad Campbell, advisors can protect themselves by documenting their recommendations. But beyond protection, how can advisors get smaller plan clients and prospects to take action now that fees are easier to ascertain?

The key is understanding that most smaller plan sponsors want nothing, or close to it — no costs, work or liability. If an advisor can limit these perceived burdens and obstacles while graphically showing how changes will improve outcomes for participants, including the people in charge, the chances to get them to act increase. Otherwise, clients believe that they have more important things to focus on.

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