Friday, January 28, 2011
PENSION PARAMETERS RESPONDS...LET THE BUYER BEWARE
4:16 PM | 
Posted by
pensionfinancialservices |
In a recent Employee Benefit News article by Jerry Kalish entitled Getting Plan, Payroll into alignment he suggested that employers would benefit from greater efficiencies if they consolidate payroll and 401k administrative services.
LET THE BUYER BEWARE: This may not be what it appears to be
Although we admit that at first blush this strategy seems to make sense, we took a closer look at the concept of consolidating payroll and 401k administration. Our conclusion: It’s “The Emperor’s New Clothes”, i.e. a popular and strong sales pitch that seems to make sense but doesn’t.
In today’s market, many will pitch that a company housing both payroll and 401k administration under one roof, will ultimately result in a streamlined process and numerous related cost savings. This is the buyer beware part.
As an independent plan administrator and investment advisor, we see major disadvantages associated with this practice that will likely add cost to a company’s bottom line.
Based on our review and experience, the 401k administration half of this product offering tends to be inflexible and a straight “vanilla” package. There is no deviation or variation permitted. If a company wants to add a new comparability feature to their 401(k) plan to maximize contributions rates for its highly paid population, for example, it would not be permitted. Plus, the investment fund choices are fixed and may be limited. Most importantly, the funds typically offered are front load or deferred load funds with high expense ratios.
These are fees that are never highlighted or brought to the attention of the “new customer.” Hence, let the buyer beware.
Kevin McCormack , President, Pension Parameters, Inc.
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