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Advisor Insights

Even More on the Troubling Framework of the Retirement Plan Industry

Contributor Scott Simon wraps up his series on the ways insurance company recordkeepers can undermine a plan sponsor’s best intentions.

In my last two columns, I related how my registered investment advisory firm took over the investment responsibilities for a 401(k) plan as the investment manager as defined in section 3(38) of the Employee Retirement Income Security Act of 1974. As a result, the plan’s new recordkeeper--a well-known insurance company--found out that it wouldn't have the power to select and monitor (and replace as necessary) the plan’s investment options. This, no doubt, was a disappointment, because it wouldn’t be able to add its lucrative proprietary stable-value fund to the plan’s investment menu.

An insurance company (or, for that matter, a mutual fund family or any other such provider) recordkeeper offers its services in order to access vast captive audiences of participants in retirement plans so that it (preferably) can more easily and efficiently sell its own products or (less preferably) the products of others (through revenue-sharing and in other ways).

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