As a fiduciary, you likely have a title that includes CFO, CEO and HR VP. On the way to achieving your current status you likely didn’t receive training on being an investment fiduciary. On the surface, it might just seem like another responsible position that your years of experience has prepared you for. Unfortunately being a fiduciary is not that simple
Fiduciary information disadvantage
The Department of Labor currently doesn’t send you a notification when they see you are now the new Named plan fiduciary. You are an investment fiduciary based on what you do, not your title. You could be one and not even know so until an investigator shows and audits your plan. I recently set up a new plan for a client and neither she nor her part-time administrator received any notice or education booklet on fiduciary status. For that, I feel sorry for all fiduciaries who have no idea of what the Department of Labor and IRS expect. Maybe in the government’s desire to cut budgets, they expect you to go online and look for information.
The fiduciary disadvantage on relying on retirement plan providers
I once spoke to a fiduciary HR VP, who figured that their household name retirement plan provider, who is also a top provider of investment products would educate them. That assumption hinges on the belief that the service provider had her and her firm’s sole interest in mind. Legally, this provider and the majority of others can have a conflict of interest. It is actually the responsibility of the fiduciary to seek out and investigate potential conflicts of interest.
I can understand, why this HR VP was wrong. Many of us, in an attempt to decrease risk choose name brands. Name brands typically become name brands because many people believe that they provide a great service. There is security in doing what everyone else is when that is not our area of expertise. Unfortunately, fiduciaries are expected to have more discerning tastes than that. Some of the most well-known retirement plan brands conjures up images of safety and comfort. Are you aware that some have been in lawsuits that alleged that they charged plans excessive fees? In all cases, you, the company, were also a defendant charged with not monitoring your service providers.
Fiduciary duty to monitor service providers
You may not typically know that the fees were excessive because they may be hidden inside of the investments that you and other participants invest in. Unfortunately, it is considered a fiduciary duty to actually understand this. A 1% decrease in cost can increase a plan balance by 17% over 20 years1. I would like to believe you would rather have $1,000,000 rather than $830,000.
Fiduciary shall overcome
How do you overcome? First of all, please forward this blog on to your friends that may be a fiduciary on a retirement plan. Second, if you are a fiduciary I recommend getting some unbiased education on your fiduciary duties. That may come from a retirement plan consultant, the Department of Labor or an attorney that specializes in retirement. Third, I think it’s most important to choose at least one fiduciary provider on your retirement plan. I believe, that a first choice should be a fiduciary retirement plan consultant. One that has broad understanding of your fiduciary risk management options should be considered as at least a co-fiduciary.
Attorney Jason Roberts, Pension Resource Institute, has indicated that focusing on increasing the retirement outcomes of your employees offers the greatest potential risk reduction. Happy employees typically aren’t litigating employees. Typically, lawsuits and complaints to the Department of Labor come from former employees. Maintaining a well-run plan decreases the likelihood of one of the employees who would have a strong leg to stand on regarding your failure as a fiduciary.
(1) PRIVATE PENSIONS, 401(k) Plan Participants and Sponsors Need Better Information on Fees, 2007. More recent data may alter these assessments or outcomes.
(2) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
(3) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
(4) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IL, MI.