Service Providers and the Coronavirus

Serious times make clear the value of 401(k) providers that offer the highest level of service.  Amidst the coronavirus, market volatility created by investors reacting to the now-named pandemic reminds plan sponsors how important is their plan’s financial advisor.

Financial advisors vary.  Consider which of the services below you and your participants receive.  Consult this list in speaking with current and future advisors to obtain the highest level of advisory service.

Investment Choice

In today’s volatile market, being invested “properly” is essential.  Successful investors own diversified portfolios that are rebalanced regularly.  They “stay the course” to ride out temporary declines and capture the permanent upward trend with the goal of maximizing wealth.

But how many of your employees are invested properly?  Few 401(k) participants have the knowledge to build and manage a diversified portfolio – or work with a private advisor to do so. 

Some 401(k) advisors offer professional investment management.  This may include providing model portfolios that are diversified with the goal of optimizing market returns over time for varying levels of risk.  Such advisors will constantly monitor models during volatile markets to seek rebalancing opportunities.  While some 401(k) plans offer individual management for a fee, professional investment management with no additional charge also is available.

Many 401(k) plans today offer target date funds in addition to individual mutual funds, but most target date funds have not served participants well in past periods of market volatility.  Most follow set rebalancing schedules that ignore strategic rebalancing opportunities.  Or worse, the set schedule will dictate selling stocks when they are down significantly and buying bonds when they may be very high.

Investment Selection Guidance

Employees benefit when the 401(k) advisor is actively available to guide participants.  The “gold standard” combines individual conversations with professional investment management and no additional fees.  In the case of selecting among model portfolios, a conversation might include the participant’s financial situation (including other assets), retirement goals and family health history to assist him or her in choosing the model with the best fit.

Financial Education

During volatile times, a proactive 401(k) advisor will reach out to employers and their workforce to calm fears related to market swings.  Markets over time have a permanent upward trend; to benefit from them, investors need to stay invested in diversified portfolios.  Participants will benefit from receiving information about past crises and the market recoveries that followed to encourage them to “stay the course” to prevent missing out on the eventual market upturn.

When markets are not volatile, participants benefit from basic financial education.  Depending upon their life stage, participants should be receiving regular information – at live meetings or via webinars, videos or articles – on everything from financial basics, saving for their children’s college education, estate planning, Social Security claiming strategies, and more.  Your advisor should provide this information and make it easy for you to distribute it.

Fiduciary Investment Protection

Some advisors are qualified and agree in writing to accept delegation from 401(k) sponsors to serve as their plan’s Fiduciary Investment Manager.  This removes potential – and personal – liability for the selection and monitoring of plan investments from all plan fiduciaries.  Most 401(k) litigation has focused on plan sponsors’ “inexpert” investment management.  During volatile markets, participant uncertainty and questions can create greater risk for employers who retain investment decision-making responsibility. 

ERISA holds plan sponsors to the very high “expert” standard when it comes to plan investments but allows them to delegate their responsibility to an advisor that is qualified to accept it.  Qualified advisors include Registered Investment Advisors; brokers and insurance sales representatives are not eligible to serve as plan Fiduciary Investment Managers.

Sometimes advisors who accept delegation to serve as a Fiduciary Investment Manager are called ERISA 3(38) advisors, but employers should be cautious.  Some 401(k) providers offer ERISA 3(38) “protection”; often this provides a list of plan investments that have undergone review by an independent advisor, however, the employer retains responsibility for selecting and monitoring plan investments based on the recommendations of the list.

Today’s uncertainty creates challenges for 401(k) sponsors, but employers can be confident based on its history that the market ultimately will return to an upward trend.   Plan participants can be assisted through this time – and beyond – to build toward a secure retirement by a plan advisor offering the highest level of service.


This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans.  Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan and hence cannot be a guarantee against fiduciary breaches.