A SAFE HARBOR FOR 401(k) PLANS™
Tidepool is a 401(k) retirement plan sponsor. We offer two different pooled 401(k) plans: (1) an SMB Plan for small-to-medium sized businesses with payroll employees. and (2) an Independent Contractor Plan for self-employed contractors.
Each plan allows multiple SMB businesses (the SMB Plan), or independent contractors (the Independent Contractor Plan), to combine resources for powerful investing results and administrative efficiencies.
Why Transition to our Pooled Employer Plan?
There are three main reasons to transition to a Tidepool 401(k) Plan over our competitors: (1) we have an uncompromising research focus that is head and shoulders above others in the retirement industry; (2) we accept full fiduciary accountability for operation of the Plan (unlike most plan providers); and (3) we maintain relentless focus on risk management to avoid large losses.
In a recent review of 2022 plan returns, it is clear that the vast majority of small-to-medium sized plans lost a significant amount of money. This suggests that their investment managers are unaware of how to avoid large losses and are unable to see or offer uncorrelated options in a volatile market. We do better.
1. Research Focus. Finding the best retirement investment opportunities requires a relentless commitment to learning and research. We must understand why certain funds perform better than others, together with the correlation factors that are embeded in each target fund. Macroeconomic trends are largely driven by global wholesale money markets and global macro hedge funds. These entities work hard to maintain an opaque investing environment. It is our job to see behind the opaque facade, understand trends and the reasons for those trends. We excel at this; which is the main reason companies should choose us as their 401(k) pooled plan sponsor.
2. Fiduciary Accountability. As the ERISA 402(a) named fiduciary for the Pooled Plan, we accept full accountability for all aspects of plan performance and administration, relieving the company sponsor of this liability burden. We can do this because our CEO, Kevin McBride, has deep experience in evaluating fiduciary duties in pension litigation, and can readily identify fiduciary concerns at an early stage.
Most pooled plans try to avoid fiduciary accountability, leaving the company sponsor to fend for itself–even for plan issues caused by plan managers. This is because the people running most pooled plans are not comfortable with ERISA and its nuances, and so try to avoid accountability.
If a plan provider is not specifically identified as the ERISA 402(a) named fiduciary, that responsibility falls back the company sponsor. So if a fiduciary lawsuit is filed, the company is in the crosshairs.
Noticeably differing from most pooled plans, Tidepool affirmatively accepts the role of named fiduciary under ERISA section 402(a). This relieves the company of sponsor liability with respect to plan administration and investing; and is a tremendous value add Tidepool brings to a company; far and above that provided by the typical plan provider.
3. Focused Risk Management. ERISA is clear in its mandate to diversify so as to minimize the risk of large losses. We continually research market developments to understand the liquidity risk factors that can expose an asset portfolio to large losses, in a virtual “blink of the eye.” To this end, risk management is the third prong of our value proposition.
In a nutshell, large investment losses are nearly always caused by liquidity disruptions in money markets that interrupt funding flows to equity and bond markets. So, identifying liquidity risk factors is of paramount importance.
We see three major predictors to systemic liquidity risk: first, disruption of the ubiquitous hedge fund “carry trade” that puts downward pressure on the S&P 500 and its correlated funds; second, large changes in other global macro hedge fund strategies; and third, a significant change in cross-border flows of funds. Significant changes in flows of funds identify changes in investor appetite for risk at an early stage. Significant increases in VIX index volatility; and volatility trading is the primary engine for driving the carry trade–and thereby impacting S&P 500 index movements. Opaque changes in hedge fund strategies can also put systemic liquidity at risk as funds place huge leveraged bets on certain outcomes that may, or may not, be realized.
Because we focus on both fiduciary accountability under ERISA and risk management to minimize the risk of large losses, Tidepool is the clear winner in choosing among plan providers.
ERISA 402: ESTABLISHMENT OF PLAN
“(a) Named fiduciaries
(1) Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan.”
If the plan fails to identify a 402(a) Named Fiduciary, that responsibility falls back to the employer. As a result, employer plan sponsors are most often the target for fiduciary lawsuits.
Get the best available options to maximize profits while effectively managing risk.
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A Better Alternative
Pooled plans shift the real risk and administrative burden from employers, who lack the time, industry-specific knowledge and resources to the PPP, who specializes in 401(k) sponsorship and administration.
But all plan administrators are not the same. A recent review of Form 5500 forms filed for 2022 shows shocking plan losses, nearly across the board. We believe these plan losses have happened because plan administrators have failed to follow ERISA’s mandate to minimize the risk of large plan losses, allowing investment managers too much leeway in managing assets for their own purposes. We aim to fix this problem for existing plans who integrate into a Tidepool 401(k) Plan.
“A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries… by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.”
29 USC s. 1104(a).
Our focus is to protect against the risk of large losses, while maintain investment performance in volatile markets. Employees rightfully expect their retirement plan to offer performance—to maintain value and continue growing in any market conditions.
Through this approach to plan management, we offer our consolidated portfolio of pension plans a safe harbor in volatile financial markets. We take to heart the ERISA fiduciary admonishment to diversify investments of the plan so as to minimize the risk of large losses.
A critical strategy choice for every pension fund nowadays is whether to invest in passively-managed funds or actively-managed funds. For us, the choice is clear: active management is a superior strategy, if done properly.
Passive selection creates exposure to most, or even all, companies in a specific sector or group–which means you are buying the worst as well as the best businesses in that group. Put another way, passive investing through indexes guarantees market correlation–so that a down market will drag down the index, without question. This is certainly not the best method of diversifying to avoid the risk of large losses, since a passive investment will essentially ride the market–highs and lows.
Active selection, on the other hand, involves culling out bad investments and under-performing companies through various filters. Active investing conducted in a rigorous manner can outperform passive investing strategies in the long run by avoiding adverse correlation risk. The important caveat, however, is that the strategy be rigorous and designed to avoid emotional reactions over time.
At Tidepool, we emphasize active selection strategies that give our portfolios a leg up against passive investing.
SMB: Target Company Profile
SMB plans that are a good fit for Tidepool have the following characteristics:
$5 million to $10 million in current plan assets
30%+ of current assets held in collective investment trust or alternative investments
Lost money in any of the past three years
If your company fits any of the above categories, our pooled employer plan will offer a significant improvement over your current plan.
independent contractors: Target Company Profile
Independent Contractor 401(k) plans are typically start-up plans with few assets. Nevertheless, the Secure 2.0 Act provides incentives and a pathway for independent contractors to use 401(k) as a retirement vehicle.
We can help with any group who wants to start 401(k) plans for their independent contractors. This plan particularly applies to independent contractors of a direct selling company.
OTHER BENEFITS OF A POOLED PLAN
Overall, joining a PEP will allow your team to focus more energy on building a successful workforce while shifting key administrative tasks to us, including:
Audits and Form 5500 preparation
Communication and education
Plan documents and SPDs
Vendor selection and monitoring