Out With the Old, In With the New

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Aaron Friedman, National Practice Leader - Tax-Exempt, the Principal Financial Group, Princor Registered Representative

I recently bought a new TV. I replaced my 36 inch tube TV simply because everything these days is broadcast in wide screen format – and I was tired of not seeing the whole play when watching the big game.

This isn’t too remarkable, except for the fact that I’m not a fast adopter of technology. It’s been nearly 20 years since I bought my previous “big screen,” so I approached the purchase knowing very little about HD technology, LED vs. LCD vs. plasma, or any of the brands available. I had a lot of research to do.

Thankfully there’s a plethora of independent information at our disposal to help us make a big purchase decision – Consumer Reports, Angie’s List, online reviews, etc. I’d bet most people consult at least one of these sources when making a big purchase. What strikes me as odd is that this kind of intense research isn’t always happening with plan sponsors and their retirement plan – a much bigger purchase.

Are educators forgetting to do their homework?

There is a great deal of literature out there these days about retirement plan governance and best practices, including topics like:

  • Investment and education policy statements
  • Due diligence processes to ensure compliance with policies
  • The need for plan documents that reflect the terms specified by the plan sponsor, and administration that’s consistent with the terms

Despite the vast amount of information out there, it seems one sector of plan sponsors isn’t using it: higher education.

When asked about their plan governance, an inordinate number of higher education plan sponsors shrug it off and simply say their service provider takes care of that. That isn’t governance. That’s the fox guarding the hen house. A provider can put procedures in place to help, but as fiduciaries, plan sponsors are ultimately responsible for plan governance.

The only explanation I can come up with for this misconception is that institutions of higher education have not traditionally used advisors.

Advisors: take notice of this opportunity!

Higher education institutions subject to ERISA, especially private institutions, need help. It’s time they ditch the old way of doing things and look for new ways to learn about fiduciary duties and what a well-run, responsible plan truly looks like. This is an opportunity for advisors to help with the basics. Plan sponsors that have done their research and are working with advisors are finding there are lots of places for improvement when it comes to plan governance, including investments, education, and plan operations.

If you don’t do appropriate due diligence on a TV purchase, you might lose a few hundred bucks. The stakes are much higher in retirement plans. A second chance may not always be possible.

In addition to blogging here, I also tweet regularly about topics of interest to Tax Exempt plans. Follow me on Twitter: @1aaronfriedman1.

Affiliation Disclosures

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.