I find that many fiduciaries have high expectations of their 401k plan providers. In fact many assume that these providers are taking on a fiduciary role and will be there to protect them should a service crack appear.
However, what happens in the event of a fiduciary crack? Most 401k plan providers, record keepers, registered representative’s a.k.a. financial advisors, companies providing 401(k) investments, opt not to be a fiduciary on a retirement plan. The Department of Labor, the ERISA police, expect that the plan sponsor, plan administrator and investment committee members engage in ongoing fiduciary education. Have any of your providers directed you to the Department of Labor Employee Benefits Security Administration to learn more about your fiduciary responsibilities and liabilities?
So why is there a 401k plan provider problem?
A couple years ago I attended the Plan Sponsor conference. I spoke to several attendees while I was there. One conversation in particular struck me. This individual had recently become the responsible plan fiduciary for a $200,000,000 retirement plan. They had no background. Their belief was that by attending this conference they would learn everything they needed to carry out their duties. Unfortunately, there was no breakout session by the Department of Labor, an ERISA attorney or an Accredited Investment Fiduciary. While there were a couple of noted ERISA attorneys, most of the 401k plan providers had products to sell. Their commentary in various discussions while interesting, did not include them taking on a fiduciary status for any of their “thought leadership”.
Unfortunately, the one firm that would be willing to take on some of the ERISA provider statuses was not one of the household brand names. Many fiduciaries believe that there is safety in numbers and choose to do what everyone else is doing rather than to become educated or choose to find a provider that’s actually willing to take on this status.
Have you asked your 401k plan provider if they are a fiduciary on your plan?
I once had a conversation with someone that represented a record-keeper. I asked them if they had ERISA attorneys. He said yes they did. One could assume from his answer that the ERISA attorneys would be working on behalf of the plan sponsor and their employees. However something told me to clarify his answer I then asked do they work on behalf of the plan sponsor he answered no. In fact these attorneys then worked on a half of his firm keeping the interests of his firm is their prime interest. Because the very essence of due diligence is to go at least one if not two levels deeper.
I know that many barely find time to read my blogs, much less delve into increased to diligence. That’s why it is a practical measure to ask what type of fiduciary status a 401k plan provider is taking. In fact one should find out what statuses are available for providers to take include hiring a named independent fiduciary. I find it fascinating that when the Department of Labor wins a suit against a plan sponsor it removes that plan sponsor and replaces the sponsor with an independent fiduciary.
Who is this independent fiduciary that the ERISA police trusts?
3 ERISA Risk Questions
- Does your plan have revenue-sharing?
- Does the advisor for your plan have other connections to your company?
- Are the retirement outcomes of your employees poor?
If you don’t know or find that any of these conditions exist you may be at risk. I recommend you get a checkup from an ERISA knowledgeable, financial professional. These professionals have designations such as Accredited Investment Fiduciary, CERTIFIED FINANCIAL PLANNER TM professional, Professional Plan Consultant, Qualified Plan Financial Consultant, etc. Further, they should accept fiduciary responsibility in writing as an ERISA 3(21) investment advisor, ERISA 3(38) investment manager, 402(a) Named Fiduciary.
This does not mean that you have to automatically change providers. However, you should get an investment fiduciary second opinion. This second opinion may involve the equivalent of getting an x-ray and potentially an MRI but in the world of ERISA just like your health, prevention is the key. Ready to get your check-up?
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.