The fiduciary duty of loyalty is an important component of turning your retirement plan into a talent acquisition and retention tool. Most companies have a few key employees that make the place run. Often these people are giving extra time and energy and become emotionally invested in the results of the firm.
Are you carrying out a fiduciary duty of loyalty?
If you Google 401(k) fees or Department of Labor actions you’ll find disturbing headlines. If your employees saw you listed amongst these headlines would they feel that you are doing well by them? Often in our busy lives we make decisions on issues that we don’t deem to be core to our success. For many companies that is where the retirement plan falls. I consistently see retirement plans with investment results that consistently underperform the S&P 500 by 4 percentage points or more. I also see savings rates including matching contributions that are less than the often cited benchmark of 10%. You and some of your other highly compensated employees may have experienced the frustration of getting money back because your rank-and-file employees aren’t saving.
A fiduciary duty to improve outcomes
While you may not personally care if all of your employees can retire with dignity, there likely are a few where you do care,: your most cherished highly compensated employees, including you. A 45-year-old highly compensated employee that puts away the maximum $17,500 for the next 25 years with a rate of return of 4% per year would likely get a significant increase in income in the future. Many fiduciaries focus on the singular issue of 401(k) fees. You can easily see that being focused on overall return and adequate savings has the greatest impact.
The fiduciary duty to investigate
A key fiduciary duty that supports the fiduciary duty of loyalty, is the duty to investigate. Fred Reish articulated it this way:
“Fiduciaries must conduct a thorough investigation and make decisions based on the information they have gathered. In this regard, ERISA requires fiduciaries to use a prudent process. To meet this requirement, they must thoroughly investigate the issues under consideration to obtain relevant information and then base their decisions on the information obtained.”
Does your current team of financial professionals and retirement plan provider give you feedback on savings rates, rates of return and participant outcomes by demographic group? If not, how can you determine what features to provide and if your plan monitoring is truly effective? I recommend finding a retirement plan consultant that has access to these tools and knows how to help guide you in using them to carry out your fiduciary duty of loyalty. This should serve you well in case a regulator or a class action attorney asserts that you were sleeping on the job.
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