You may have directed a broker or other retirement provider to handle your retirement plan but that does not include your fiduciary liability. Unfortunately, “objects in the mirror may not be what they appear.” Unless your contract with your provider specifically states that they are a fiduciary then they do not intend to share in fiduciary liability let alone take it from you. That doesn’t have to be the case.
If you’re like many fiduciaries you’re already giving as much time as you feel you can and offering your employees the plan. Some very costly lawsuits indicate that the bar has increased regarding the oversight that the Department of Labor and class-action attorneys are bringing to retirement plans.
If you’re like about 40% of the fiduciaries highlighted in the Alliance Bernstein research you aren’t even aware or unsure if you are indeed a fiduciary. And if you do know that you are an investment fiduciary according to the laws of the Employee Retirement Income Security Act do you actually know what standards of care you are responsible for implementing?
Decisions on a plan must be done with the sole interest of your employees in mind. I’ve run into some situations where the fiduciary picked a client of theirs or someone related a client as the broker for their plan. Often terms such as broker, financial advisor, and retirement plan advisor are used interchangeably. Why should that matter if they are appropriately licensed and registered right? Not necessarily some licenses automatically make someone a fiduciary while others do not. Further, all investment fiduciaries are not aware of the specifics of the Employee Retirement Income Security Act. If Fortune 500 finance companies are losing lawsuits regarding how they manage their 401(k) plan, that may tell you something.
Still too busy? Here are some underused fiduciary liability management tactics
Should you leave your fiduciary liability up to hoping that the DOL won’t audit you? Start by finding out what liability your providers are taking on. Ask your plan provider (record-keeper) if they are a direct it or a discretionary trustee. The majority of firms are directed. That means that you give them directions on what you want them to do. And you are responsible for those directions. By picking a discretionary trustee that entity in effect says that they know what they’re doing and are willing to take on the liability for their actions. You, acting as a sponsor, is always responsible for oversight, this should help give you some confidence to get out of the day-to-day operations of your plan.
You can also use an independent named fiduciary. They will help in hiring other providers. An independent named fiduciary is what the Department of Labor, the law enforcement agency for ERISA selects when a plan runs afoul of the law. Of course, the Department of Labor understands the laws and knows what to look for when selecting providers.
Certain investment professionals actually do take on fiduciary liability. An ERISA 3(21) investment advisers (investment adviser) can take responsibility for investment recommendations for your plan. This type of adviser effectively sits on the same side of the table as you helping you figure out what your plan needs and how you might your fiduciary liability. Their responsibility will be defined by the contract you both agree upon. While you don’t transfer liability, you at least have someone acting as an off balance sheet subject matter expert. An ERISA 3(38) investment manager (investment manager) is focused on taking discretion of your plan’s investment decisions. You will be transferring much of the responsibility and fiduciary liability of the investment menu to this investment manager. Don’t choose one in haste. There are several types in the marketplace. You are responsible for their selection and their oversight. I believe you should start by picking an investment adviser. You can learn more about these roles at the Center for Fiduciary Studies website (www.fi360.com).
This quick, ten question Employer Report Card Final from the 401k Service Solution may show that all is fine. However, it may not. With most things in life, early detection can lead to a cure. This is just one of our tools to help you manage your fiduciary liability and help your employees benefit fully from your plan.
Assessing the State of Defined Contribution Plans Today Inside the Minds of Plan Sponsor, Alliance Bernstein, 2010
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.