Are you aware of your fiduciary liability? I have talked to many a responsible plan fiduciary who seemed frustrated when I asked him about the retirement plan. Usually it was questions that they did not know the answer to. Usually there were questions that they could not easily answer. When they wanted to dismiss me, they would often say that they felt that it was good enough. While that can easily work to dismiss someone that you consider a salesman, it will not, in fact, work in saving you from the law.
The fiduciary liability of not knowing the law
One of the global precepts of the center for fiduciary studies is to know the laws that govern. I’ve yet to ask a responsible plan fiduciary if they that have had formal training as a fiduciary under the Employee Retirement Income Security Act where they answered yes. Before one even starts to dig in they should notice the words in the act: employee retirement income security. Do you know if your employees are on a path to retirement income security? One of the duties of a fiduciary is that of loyalty. Arguably, one cannot be loyal if one does not actively pursue the purpose of the act for which your retirement plan is to suffice. If you’ve been a fiduciary since the early 80s, you probably entered at a time when many felt the 401(k) was a supplement to other areas of retirement income such as a pension or social security. My how times have changed. For an ever-increasing number of Americans, their 401(k) and IRA are their main source of creating retirement income.
Fiduciary liability of set it and forget it
As a fiduciary, you are responsible for the ongoing monitoring of your investments, service providers and administrative compliance. You should carry out your monitoring duties of care and should know the available options in the marketplace. Have you considered other providers in the last year or since you’ve started your plan? Many plans start out with a small plan balance and have high fees as the parents of plans with larger plan balances. Unfortunately, there is not necessarily a trigger to automatically reduce your fees as time goes on. This is especially true if your providers are not working in a fiduciary capacity. Further, if the financial professional who you contracted to help you with assistance in plan oversight is not an investment fiduciary you may not be enjoying the reductions that your plan actually qualifies for. There have been significant changes in the last few years with the addition of a qualified default investment alternative, auto enrollment and auto escalate features. Are you working with a financial professional service provider that has specific knowledge in this area? If you’re not working with an ERISA 3 (21) investment advisor or an ERISA 3 (38) investment manager, I don’t believe you are working with a specialist. Even amongst these higher-level qualifications, there is not complete agreement. Further, if you’re working with a directed versus a discretionary trustee, you are not passing on any of the liability for your administration and other trustee functions. You probably weren’t aware that these options actually existed.
The fiduciary liability of not knowing what you don’t know
Unfortunately, “ignorance of the law” is no excuse. However, you can work with providers that take on liability for their actions. I recommend working with a specialist advisor that can put together a team of providers that share in your fiduciary liability. Depending upon the size of your plan, you may actually be able to find advisors that would act in various specialists’ capacities on your plan such as the investment, fiduciary and plan services. There are many possibilities, and this is why I recommend working with a specialist who understands your breadth of options. An accredited investment fiduciary, professional plan and qualified plan financial analyst are but a few of the qualifications that you should look for that indicate the financial professional you are working with has specific knowledge to help your duty of care in carrying out a prudent monitoring process. A great place to start is a plan review or vision session with a professional plan consultant. Are you ready?
This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.