The Modern 401(k)

The Modern 401(K) Advantages

  • Manages Fiduciary Risk for Plan Sponsors

  • Manages costs to comply with ERISA 404 a

  • Industry leading due diligence and reporting

  • QDIA compliant investment management options

  • Effective employee communication and education

The 401(k) is the primary retirement saving vehicle for the vast majority of Americans with over $3 trillion dollars invested in over 50 million individual participant accounts, according to the Investment Company Institute. Since the 401(k) creation in 1978, retirement plan assets surged due in part to the tremendous bull market run in stocks from 1983 to 1999. Conversely, since 2000, stocks experienced tremendous volatility falling nearly 50% in price twice since then and resulting in below average returns. These low returns coupled with insufficient savings levels by participants resulted in American workers having a retirement shortfall of $6.6 trillion, according to a recently published study by Retirement USA. Given the large sum of money currently at risk and the potential shortfall in retirement savings for many Americas workers, the Department of Labor has been working aggressively to reform the rules governing 401(k) plans. The general direction of these rules is forcing plan sponsors to take on increased fiduciary risk and provide a broader range of education and investment management options. This will allow plan participants to grow saving prudently whether they are experienced investors or are unsophisticated investors who need help managing their portfolio.

The Modern 401(k) offered by Aurum Advisory Services offers employers of all sizes a 401(k) program to meet the new standards the DOL is moving towards by helping to mitigate the fiduciary risk employers face today and providing both experience and unsophisticated investors investment options that can help them diversify the risks associated with today’s volatile markets. By managing the fiduciary and investment risks, Aurum Advisory Services allows employers to maintain the 401(k) as a key tool to recruit and maintain talent instead of becoming one of the employer’s largest liabilities.

At the center of The Modern 401(k) is Aurum Advisory Services’ commitment to serve as a Fiduciary to the plan under section 3(38) of the Employee Retirement Income Security Act of 1974. As a 3(38) fiduciary to the plan, Aurum Advisory Services takes on full responsibility regarding what investment options are offered to plan participants, the on-going monitoring of the investments, and the responsibility for removing and replacing fund options if warranted. Since Aurum serves as an ERISA 3(38) investment manager, we assume full discretion of the assets and therefore take on full responsibility for the investment decisions in the plan.  Hiring a 3(38) investment advisor to manage the investment decision process is the best way a plan sponsor can mitigate much of the liability associated with the investments offered to employees. 

ERISA section 404(a) is another potential pitfall employers face when offering a 401(K) plan. ERISA section 404(a)(1)states that fiduciaries must discharge their duties with respect to the plan solely in the interest of the participants and beneficiaries of the plan. ERISA 404(a) goes on to state that the fiduciary must act for the exclusive purpose of providing benefits to the participants and beneficiaries and defraying reasonable plan administration expenses. The problem is that most plan sponsors do not know what reasonable plan expenses are and are not knowledgeable on how or where to negotiate fees to lower plan costs for the plan participants. When Aurum Advisory Services is engaged as the 3(38) fiduciary to the plan, our knowledge and experience of the industry allows us to negotiate fees with various custodians, mutual funds, and Recordkeepers to deliver the lowest cost plans without sacrificing service and performance.

Besides helping to manage fiduciary risk for plan sponsors, one of the other key benefits of the Modern 401(k) Plan is the ability to provide a robust investment platform that serves both the do-it- yourself investor as well as those who want help managing their money. For the do-it-yourself investor, Aurum Advisory Services provides a robust fund lineup of equity, fixed income, and alternative investment options driven by Aurum’s investment selection and due diligence process.

Aurum Advisory Services solves the challenges of delivering advice to participants by offering a managed portfolio option to all plan participants. Individual participants can choose to either allocate among the core fund lineup themselves or have Aurum Advisory Services allocate their portfolio for them by using the Aurum Asset Allocation Frameworks. The Aurum Asset Allocation Frameworks are compliant with the DOL QDIA regulations and provide five portfolio allocations with diversified allocations for investors ranging from very conservative to those looking for aggressive growth of their assets. Each of these portfolio are balanced between stocks, bonds, cash, and alternative investment strategies in order to provide a portfolio that properly diversify the assets and the risks associated with investing in today's volatile financial markets.

The decision on which Asset Allocation Framework makes sense to invest can be chosen based on the participants risk profile or current age. By selecting the Target Age option, a participant will invest in the Aurum Asset Allocation framework that linked to the specific age bracket. Aurum Advisory Services network of Certified Financial Planners and independent investment advisors will also be available to the plan participants to answer questions regarding the underlying investments and the Aurum Asset Allocation Frameworks as well as addressing other financial planning questions participants may have. By combining a strong investment management platform with a direct support and advice, participants in The Modern 401(K) program can more effectively achieve their retirement goals.

For more information on the Aurum Asset Allocation Framework and Aurum’s investment management philosophy please click here.

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