401(k) Plans

We are a 401(k) advisor offering open-architecture 401(k) retirement plans, also known as Defined Contribution Plans, through a variety of brokers including Fidelity Investments, America’s largest 401(k) provider. We are very passionate about the 401(k) marketplace because we feel that while 401(k)’s make up a key component of retirement planning, they are often times loaded down with unnecessary expenses and offer poor investment options. As an independent, fee-only investment advisor, we are a provider of 401(k) solutions that minimize many of the excessive costs of offering a qualified retirement plan to your employees, while providing best of breed investment options to plan participants. This page is divided into two Sections. Section 1: 401(k) Checklist Section 2: 401(k) Solutions provided by The MAC Section 1: 401(k) Checklist: The following are some critical issues that a company should consider before deciding on a 401(k) plan:

1. Has the plan’s advisor signed or willing to sign a statement of fiduciary responsibility to the plan’s participants?
2. Are the investment choices offered on an open or closed-architecture platform?
3. Is the plan advisor a fee-only advisor, a fee-based advisor or a broker?
4. Are all the plan’s fees, commissions and expenses disclosed? Are there any soft dollar arrangements?
5. Does the plan have any sort of penalty for terminating it?
6. Is the investment advisor – the person(s) deciding which investments will be offered - independent of the plan provider?

1) Is the plan advisor signed on or willing to sign on as fiduciary to the plan? How do I know? If you have a separate contract signed with the advisor, it should state whether he has signed on as a fiduciary. As a general rule, brokers will not or cannot sign on as a fiduciary where as a Registered Investment Advisor (RIA) will typically assume this role. Why is this important? Even though you may not know it, the employer or business owner(s) has a fiduciary responsibility to the participants of the company’s 401(k) plan. In other words, the business owner is required to run a retirement plan in the best interest of his or her employees. Often, the business owner is not only unaware of the fiduciary responsibility that he or she has inherited, but they stand alone as the only fiduciary for the plan. The primary means of mitigating the owner’s responsibility to the plan’s participants is to have an advisor sign on as a fiduciary. (It is not possible to eliminate the owner’s liability.) Are the investment choices offered on an open or closed-architecture platform? How do I know? There are several ways to easily identify if your plan’s platform is of the closed variety (Chances are, your plan is on a closed architecture platform as I’ve been told that over 90% of the plans in place are.) Here are a few of the easier ways to tell.

If your plan is offered through an Insurance Company (i.e. John Hancock, Principal Financial, The Hartford, ect) or a mutual fund family (American Funds, ect), then you definitely have a closed architecture plan.

If the plan’s fund options are limited to a small group of funds (10 – 30 funds), you most likely have a closed architecture plan.

If your plan contains B, C, T or R fund share classes, then you have a closed architecture plan. (A simple trick is to look at the fourth letter of the ticker symbol for your funds. The fourth letter typically, but not always, designates the class of the fund. If the fourth letter is consistent, then it’s fairly safe to assume that is the share class you’re buying into. As an example, ABCRX would be an R-share class fund.)

An open-architecture plan will offer the entire universe of funds that maintain a selling agreement with the plan’s custodian. (The TPA may only offer a select group of funds at any given time in order to keep costs down, but typically the entire universe of funds is available to be added to the platform.) Furthermore, open-architecture plans typically offer a brokerage account option, where participants can establish an account similar to a traditional brokerage account enabling the participant to buy individual securities including ETF’s, stocks, bonds, ect.) Why is this important? Since our firm’s primary role is provide Asset Management services, we maintain that providing an open-architecture platform to our clients is the single most significant benefit we can provide. There are two key advantages to having complete flexibility in choosing the funds for our clients’ plans. First, we can provide funds that are in-line with our investment management strategy which often times diverges from that of conventional financial advisors. We can provide the following type of mutual funds via an open-architecture platform that are typically not found in traditional 401(k)’s.

Commodity Funds

Inverse or Bear Market Funds

Country and Region Specific Funds (i.e. China, Brazil, Eastern Europe)

Stable Value Fund^x

Low-cost Index funds

Second, we can offer any share class available including no-load, low-cost index funds. In a closed-architecture platform, funds pay the provider a fee for being included in the plan, which in turn compensates the financial advisor for selling the plan. This fee is often hidden and not seen by the participants. I have found that 401(k) funds often underperform their no-load or A-share class counterparts. The fees paid to the provider are obviously one of the underlying reasons why these funds underperform but I am convinced there are other reasons as well. Since closed-architecture plans limit their fund offerings, there is limited competition for plan assets. Typically, you’ll only have one fund in a specific sector or market cap. Therefore, fund’s investment management team is less concerned with the performance on their 401k funds (R-shares or Variable portfolios) then they are with brokerage account funds (no-load or A-share class funds). There are all sorts of tricks that investment managers can play such as front-running that will typically lead to one fund outperforming another. Open-architecture plans typically include either no-load funds or A-share class funds bought at NAV (Net Asset Value). These funds often carry lower 12b-1 fees and any up-front commissions are waived.

Is the plan advisor a fee-only investment advisor, a fee-based financial advisor or a stock broker

How can I tell? If the plan’s advisor is a fee-based financial advisor or stock broker, he will be required to have the name of his broker-dealer on his card. It will say something like “Securities, products and services are offered through…” (If you don’t have a card handy, the same verbiage can be found at the bottom of each page of their website.) A fee-only investment advisor will be registered as an Investment Advisorr with a specific state or with the SEC. If the advisorr is fee only, either Registered Investment Advisor or will appear on his or her card. (We’re registered with the State of Texas meaning we can only conduct business in the State of Texas – but why would we want to do business anywhere else?) Why is this important? There are two significant reasons why it’s beneficial to use a fee-only investment advisor to oversee your company’s 401(k) plan.

1. Since a fee-only advisor is prohibited from being compensated in any means other than client fees, the advisor can instruct the TPA to recoup 12b-1 fees paid on the plan’s assets and use them to offset the administration costs of the plan. This lowers the out-of-pocket expense to the employer saving the business owners money.
2. The other significant benefit do doing business with a fee-only investment advisor relates to conflicts of interest. Theoretically, a fee-only advisor has minimal conflicts of interest. If your plan’s advisor is “fee-based” or a traditional broker, he is being paid by someone other than the person who is benefiting from his service. Therefore, this creates an inherent conflict of interest.
3. Are all the plan’s fees, commissions and expenses disclosed? Are there any soft dollar arrangements?
How can I know? You typically cannot unless you’re willing to pour over pages and pages of contracts and prospectuses (fun, fun!). The most efficient means is to ask your provider or advisor and hope they’re being straight with you. Also, you can call our office and we can review your plan documents to determine any sort of soft-dollar arrangements. (We know where to look.) Why is this important? A reoccurring theme we hear from business owners is their frustration in trying to calculate the actual 401(k) costs that the company and its employees are paying. As a fee-only advisor, all fees are disclosed. There are no wrap fees, hidden expenses, ect. Typically, the fees for our 401(k) solutions consist of total fund management expenses, TPA fees and advisor fees.
4. Does the plan have any sort of penalty for terminating it?
How can I tell? If you’re the business owner, you’ll have to sign an acknowledgement form with the insurance company or 401(k) provider stating you understand there is a surrender charge or early termination fee on the plan. You can also call your provider and they’ll have to disclose both the nature and the schedule for any termination fees. Why is this important? 401(k) plans provided by Insurance companies, such as The Principal, Nationwide Financial, John Hancock and The Hartford are famous (or infamous – depending on your point of view) for offering plans that have minimal start-up and administration fees but then lock you into the plan for several years by applying a surrender charge penalty for terminating the plan. This provides them the opportunity to recoup start costs by charging excessively high fees on plan assets. If you’re the business owner, chances are that you’re the biggest contributor to the plan, so you’ll be the one who takes the biggest hit due to excessive fees and surrender charges. For a lot of small businesses implementing a start-up 401(k), insurance companies were the only option. But now there are several TPA’s provide administration on a start-up 401(k) for a reasonably low fee. It may require a bit more up-front, but it will be far less expensive in the long-run.
5. Is the advisor providing investment management for the plan – the person(s) deciding which investments will be offered - independent of the plan provider?
How can I tell? If you have a separate contract with the advisor on the plan, then he or she is more than likely independent from the plan provider. Why is this important? If the plan advisor is not independent, then there is a natural conflict of interest. While you aren’t paying for the advisor directly, he or she is being paid by someone – someone who’s #1 priority is most likely not the plan’s participants. Section 2: 401(k) Services provided by The MAC. The MAC is Registered as an Investment Advisor with the State of Texas. Our primary office is in Dallas, TX and we provide 401(k) plans to clients throughout the State of Texas including Austin and Houston. For information on plans that we provide for Small Businesses, such as Defined Benefit Plans, SEPs and SIMPLE IRA’s, click here. The MAC acts an advisor to 401(k) Plans. The following is a list of services that our firm provides our 401(k) clients:
6. Conduct a thorough needs assessment to determine what type of plan will best serve the client’s needs.
7. Research and select a custodian for the plan’s assets
8. Research and select a Third Party Administrator (TPA) to administer the plan. The TPA will perform all the necessary administrative duties related to executing a plan, such as daily valuation of participants accounts, executing trades, preparing the company’s 5500 tax form along with completing compliance testing requirements.
9. Provide asset management for the plan including mutual fund selection, including low-cost index funds (typically less than 17bps)
10. Offer an actively managed portfolio option for plan participants. The MAC’s 401(k) Portfolio is designed to reflect the same investment themes that direct our individually managed accounts. (Participants may choose between the MAC’s Portfolio or they may choose to self-direct their investment selection.)
11. Conduct enrollment meetings and provide educational materials to improve participation rates.
12. Serve in the official role of a 401(k) advisor to the company’s plan by signing a statement of fiduciary responsibility to the plan’s participants.
13. Provide retirement planning services and personal money management advice to 401(k) participants.
401(k) Offerings
14. Start-up 401(k) Plans
15. Safe-Harbor 401(k) Plans
16. Roth 401(k) Plans
17. Profit Sharing Plans
18. New Comparability Plans / Benefit based Profit Sharing
19. Individual 401(k)
Start-up 401(k) Plans Yes, we do advise clients on Start-up 401(k) plans. Historically, small to medium sized companies (less than 500 employees) had very few options when initiating a retirement savings benefit for their employees. With the advent of open-architecture plans and low-cost administrative providers, options for smaller companies have improved dramatically. Our initial step will be to complete a needs assessment to determine which kind of plan is best suited to fit your companies needs. During this process we’ll do a cost-benefit analysis and comparison.
20. Back to 401(k) Offerings
Safe-Harbor 401(k) Plans The Safe-harbor provision was established to help small businesses implement 401(k) plans while keeping administration and testing requirements to a minimum. To qualify for the Safe-harbor exemption, a plan must meet certain pre-defined criteria. This criteria varies depending on the size of the plan but basically involves the employer making certain minimum matching requirements.
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Roth 401(k) Plans We do offer Roth 401(k) options as part of our plans. The quick run-down on Roth 401(k)s is this. Employee contributions are after-tax dollars and distributions are tax-free assuming all the necessary conditions are met. However, Employer match and profit-sharing contributions are still pre-tax and all distributions will be taxed when they are paid to the beneficiary of the account. (Participants can defer taxes on distributions by transferring the assets directly into a Rollover IRA account.) There has been a lot of buzz surrounding the new Roth option on 401(k)’s but we are generally not in favor of adding this option unless there is a compelling reason to do so. We’ve found that adding additional options only serves to confuse participants and results in lower participation rates. If you have a young workforce or several highly compensated individuals who are maxing out their contribution allowance, then a Roth option may be a good idea for your company.
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Profit-sharing plans Often times, a company will include a profit-sharing bonus or plan for its employees as part of their 401(k) retirement plan. This accomplishes two objectives. First, if provides employees a key incentive while allowing the owners to receive company profits on a pre-tax and tax-deferred basis. Second, contributions made to a pre-tax profit-sharing may improve the ratios for discrimination testing so business owners and highly compensated individuals can contribute more to their 401(k) accounts.
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New Comparability Plans A few years back, the IRS approved a new method of testing 401(k) contributions based on a benefits basis rather than on a dollar contribution basis. This new calculation method basically serves to combine the benefits of an age-weighted defined benefit plan with the flexibility of a defined contribution plan. In specific instances, a New Comparability Profit Sharing plan allows business owners to make far larger contributions to their own 401(k) accounts while providing only marginally higher contributions for their employees. Law Firms, Medical practices, CPA firms and Architecture firms are just some of the examples of companies that typically could benefit form this type of plan. We also provide defined benefit plans for small businesses which may allow for an even larger pre-tax contribution. You can learn more by clicking here.
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Individual 401(k) Plans An individual 401(k), which is sometimes referred to as a Solo 401(k), is a qualified retirement savings vehicle for self-employed persons without any employees other than a spouse. Often times, it is a toss up between whether a selp-employed person should utilize a SEP-IRA or a Solo 401(k). The primary reason for implementing a solo 401k versus a SEP-IRA is that in some circumstances, a solo 401(k) will allow you to defer additional income. We offer a unique Individual 401(k) solution through Fidelity Investments. Our solution is unique because it utilizes a brokerage account allowing you to invest in individual equities, bonds, funds, ect. (Most Solo 401(k)’s are provided by a mutual fund family and only their funds are available. AIM funds is one of the fund families that offers a solo 401(k).) And the best part about our solution is that Fidelity doesn’t charge anything to administer the plan. The only fee you’ll pay is our asset management fee which is based on a percentage of assets in the plan.
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