Few things in life pay off as muchastaking preventive measures. Consider for instance, that seat belts are credited by the National Highway Traffic Safety Council with saving more than 250,000 lives since 1975.

Preventive medicine has benefits as well. A recent study found that eating dark chocolate every day reduces the risk of fatal heart attacks and strokes. And the Mayo Clinic advises that doing crossword puzzles and other mental exercises can help stave off memory loss.

It's been proven time and time again that taking preventive measures can help avoid disasters, improve lives or both. There is a parallel in the retirement plans marketplace, where financial advisors can provide tremendous value for business owners by reviewing the inner workings of 401(k)s and other defined contribution retirement plans for potential risks and overall effectiveness.

Thoughtful, routine reviews can help pinpoint and reduce fiduciary, investment and compliance risks before they boil over. In the process, advisors and plan sponsors may be able to find ways to enhance the effectiveness of the retirement plans themselves. It's an approach that requires taking the initiative and one that can position an advisor as a problem solver. It can also demonstrate value to clients and help to differentiate oneself in the local marketplace. This will become increasingly important as new regulations take effect for retirement plan fees and commissions.

Financial advisors are encouraged to critically examine the overall performance of retirement plans with sponsors at least annually. The process should entail five critical steps:

1. Conduct an annual plan review.

This is the report card for the relative effectiveness of the retirement plan in meeting the goals and objectives of the business owner and the firm's employees. A comprehensive review should look at not only the plan's investment choices and performance but the design of the plan, how the plan is being operated in accordance with the plan document, how well the employee education programs are working, and whether or not changes may be in order.

If the plan is falling short of its objectives, it may be time to consider changing its design to help the business owner enhance his or her retirement savings, reward senior or older employees, or some other combination to juice the plan's relative effectiveness.

The plan's provider, a third-party administrator or both should be able to help consult on potential design changes.

2. Document the fiduciary process.

A retirement plan needs to be run just like a business, with a board of directors, otherwise known as the plan committee, to make key decisions, establish and monitor procedures and document all decisions. The committee needs to conduct an annual plan meeting complete with an agenda for review of minutes from the previous meeting, the performance of plan investment options, compliance with new laws and regulations, effectiveness of participant education and communication, and plan operations. Any changes should be voted on and finalized.

3. Establish and maintain an investment policy statement.

Every 401(k) or other defined contribution plan should establish and maintain an investment policy statement. The plan's investment objectives should be formalized and any processes and procedures for selecting investments should be documented. The statement should then serve as the foundation for an investment performance review. Think of the documentation process as a seat belt for potential audits by regulators such as the U.S. Department of Labor.

4. Take stock of investment performance.

Few things are as dynamic as investments, especially in the new world economic order. More than ever, it's critical for advisors and sponsors to regularly scrutinize plan investments. Advisors are encouraged to regularly discuss overall economic trends with plan sponsors and review performance of the plan's investment options. Flag changes in investment managers, check for consistency of investment styles and identify any issues with performance.

Weeding out fading performers and replacing them with funds that hold better potential can make a big difference in plan participants' retirement savings over both the short and long term. This is one of the key areas of plan management where advisors can really shine by demonstrating their knowledge and expertise. It's where the rubber meets the road and, when it does, an advisor should be peeling out.

5. Promote employee education.

Few things can sidetrack a retirement plan than low employee participation. It can hurt not only the retirement readiness of employees, but it can also limit how much the business owner can save and invest for retirement as well. Employees need to be constantly and consistently reminded about the value of employer-sponsored retirement savings. Work with the plan sponsor to schedule regular education meetings, targeted mailings and other initiatives to promote long-term financial well being.

Launching education programs are only a half measure, however. That's because any employee education program worth its salt measures results.

When Ed Koch was mayor of New York City, he famously asked practically everyone he came into contact with, "How am I doing?" Advisors can do the same by working with plan providers to track the effectiveness of each plan sponsor's ongoing educational campaigns and seminars. Like crossword puzzles and other mental gymnastics, it takes regular education and promotion to connect with the brain. The former mayor's question can be answered succinctly with figures on plan participation.

Five Ounces of Prevention
Taking these steps is like applying five ounces of prevention rather than having to reach for five pounds of cure.

Having forethought is particularly important in today's retirement plans marketplace as advisors address new regulations requiring heightened disclosure of plan fees and, later in the year, disclosure of commissions.

Plan sponsors can no doubt be expected to ask about what they're getting for their money. Advisors who are proactive can talk about their program of regular reviews, possible improvements made as a result, steps taken to avoid potential pitfalls and the overall effectiveness of the plan.

When the conversation on fees and commissions goes down, those who take action are more likely to equate the taste to dark chocolate rather than castor oil.


E. Thomas Foster Jr. ESQ. is The Hartford's national spokesperson for qualified retirement plans.
Foster works directly with broker-dealer firms and advisors to help them build their qualified
retirement plan business and educate them about industry issues. "The Hartford" is The Hartford
Financial Services Group, Inc. and its subsidiaries, including Hartford Life Insurance Co.,
Hartford Retirement Services, LLC ("HRS"), and Hartford Securities Distribution Company,
Inc. ("HSD"). HSD (member FINRA and SIPC) is a registered broker/dealer affiliate of The Hartford.

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