401k choices… walking the line

The Urban Dictionary defines “walk the line” as  abiding by the the law and/or to abide by moral standards; to walk a straight path401(k) choices of decency by following the rules.  Johnny Cash made the phrase popular with the following lyrics:

“I keep a close watch on this heart of mine. I keep my eyes wide open all the time. I keep the ends out for the tie that binds. Because you’re mine, I walk the line.”

The song was written by Johnny Cash to his wife. It was an assurance to her that, even though he was away from her a lot, performing on the road, he would never cheat on her, and not only that, it was easy not to because he loved her so much. He would walk the line.  The song also speaks volumes about relationships.. husband and wife, employer and employee. An investor can add their 401(k) Plan to the list as well.  Your Plan Sponsor, typically your employer or a designated Plan Administrator assigned that responsibility by your employer, places his or her personal wealth on the line when they created your 401(k) plan documents and hired a record keeper to manage the plan.  Unfortunately, if your employer runs a smaller organization, they will rely entirely upon a “service provider” to provide assurances that the Plan Sponsor follows the rules and meets the required fiduciary standard of having your best interest in mind when recommending investments.  The service provider has to “walk the line” to protect the Plan Sponsors fiduciary best interest.

Well, the truth is that Johnny Cash didn’t walk the line; he admitted to having had an affair with June Carter for 2 years before divorcing his first wife for whom the song was written.  And the truth is that not all service providers walk the line either.  Many of my readers have learned volumes about 401(K) plans by conducting due diligence on their own plans, and the most important resource available today began as a small startup venture by two brothers, Mike and Ryan Alfred, 2007.  Gathering defined contribution data from  the Department of Labor reading room in Washington, DC in 2008, they launched their website, BrightScope.com, with 1,000 BrightScope ratings.  By January, 2010, they had rated 30,000 retirement plans, and they continue to grow today, evolving with new features annually to better educate the 401(k) investor.

An added benefit, and most likely not intended by the brothers, was to provide an investigative resource for federal regulators and investigators to quickly research plans for possible fraudulent activity.  By comparing plans,and  researching the accounting methods used for possible hidden fraudulent activity, an investigator can quickly find red flags that helps set the stage for further investigation.

For the investor, BrightScope can provide a valuable due diligence tool to help guide the investor to make the right decisions.  It also provides compelling evidence to support recommended changes by the Plan Administrator to walk the line on behalf of their plan participants.  For the Asset Manager/record-keeper, BrightScope offers a feature called Beacon, described as… “the industry’s premier integrated market intelligence solution that fosters higher sales, higher retention, and a streamlined approach to management reporting and analytics.”  If you want to learn the truth about your 401(k) plan, log into BrightScope.

Principal Life Insurance Company, score rating of 49 Points… loss of $283,392 in Benefits:

For the remainder of this post, I will illustrate a quick reference for finding which plan offers the most benefit for your dollar.  Open BrightScope.com, log in, and  in the Select an option link, click on Research a 401k Plan.  Enter the name of your employer in the Search by company name box, and if it has been verified, it will show up in the drop-down box.  It will also indicate whether or not the plan has been rated. If so, a rating value will show up to the left of the business name as illustrated below….401k choices

With my previous employer, you will notice a rating of “49,” which is a rating comparison used with a “peer group.”  The Overview 401k choicesfurther explains this rating as illustrated in this chart.  When compared with the “top rated” plan in the peer group, I will have to work 23 additional years to recover the $283,392 I  lost because my employer has been using Principal Life as a service provider.

As a Plan Fiduciary, a comparison of other plans is important in your due diligence effort to find the best 401k solutions of your employees.  You need to find a “benchmark” to help make the right choices.  Setting up a spreadsheet and listing various business names, their provider information, and the BrightScope rating is a start, and not difficult nor time consuming.  If you follow your own intuitions, it won’t take long to figure out which plan is best for your workers. 

T.Rowe Price, score rating of 85 points…. a better choice:

The following employer, A.T. Kearney, Inc., located in Chicago, Illinois, seems to have found the right choices.  From the following chart, you can see their rating is 85 points, near the top in their peer group:

401k choices

The service provider is, and has been, T.Rowe Price for many years, an obvious bright spot in a world of corruption.  You should have the resources to make your own choices for your employees, and remember, your personal financial value is at risk if you fail to make decisions that are in the best interest of your employees.

 

Finally, for the past seven years I have investigated the Principal Group of Companies, and for the past three years, have been blog posting some of my research to inform my readers of the risks of investing with Principal.  I had hopes that Principal would make some effort to either refute my allegations (and accusations), but they refuse to do so.  I suspect their failure to act is because they know my research is based on truth and they don’t want to draw more attention to the issues.

Beginning in 2018, I will be publishing more information on how Principal successfully stole billions of dollars from their 401k clients, using inside access to the Department of Labor mainframe computer through either a vendor or an inside employee of the agency.  They were able to have incriminating reports removed from the DOL mainframe computer, and by manipulating the EFAST software used to report financial data, they were able to avoid detection.  

EFAST-1  software was developed in 2000 to help electronic filers file the form 5500 and 5500-EZ reports to the Department of Labor.  A decade later, EFAST-2 can on-board to make filing reports even easier.  Using the EFAST software, the Department of Labor can track a host of information regarding each plan provider as well as the 401k plans themselves.  To accomplish this feat, they can extract information from specific cells within the software and identify specific issues like Corrective Distributions, and, more importantly, Unallocated Funds.

The Value of funds held in insurance co. general account  portion of the report helps the DOL and the IRS track what should be considered as taxable income, and corrective distributions may be included in that category as well, but if those same distributions don’t show up as a “Benefit Claims Payable” under Liabilities, the corrective distribution was either never made, or did not exist in the first place.

Through database manipulation, a service provider is able to avoid detection by the regulators,while stealing billions of dollars from investors.  I had hoped Principal would “come clean” and reimburse investors for their losses.  This has not happened, and in 2018, I will be reporting on my continuing investigation… for the public to decide the outcome of Principal’s guilt or innocence.

Merry Christmas and Happy New Year, 

Dennis Myhre, AIC

 

 

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Author: Dennis Myhre

Mr. Myhre can be contacted at..... dmyhre@fiduciaryfactor.com