As the Department of Labor (DOL) continues to increase their oversight of 401(k) plans, as well as the number of auditors on staff to enforce this oversight, now is a great time to give yourself and your 401(k) plan a "fiduciary gut-check". Remember... most corporate senior executives along with certain HR personal and investment committee members are considered, by either their title OR their actions, to be plan fiduciaries and are fully subject to the exposure of personal liability found under ERISA. Here are 5 things the DOL expects every fiduciary of a 401(k) to know...
1) Despite what you might have heard... Fiduciaries CANNOT fully-delegate their liability to service providers. The DOL has been very clear about this. There are certainly ways that fiduciaries can share this liability or even delegate certain functions to service providers. But completely removing the responsibilities and liability that comes with being a fiduciary is completely impossible and nothing more than a great sales pitch.
2) Just because participants choose their own investments, fiduciaries can still be liable for investment results. It is a common misconception that if a plan meets ERISA Section 404(c), the requirement that the plan offer a diversified lineup of investment options, that the fiduciary is then off-the-hook when it comes to investment results. However, if the fiduciaries are not regularly monitoring these investment options, a breach of duty can result. Furthermore, just relying on a review performed by a non-fiduciary vendor without any understanding of how the process is performed, does NOT satisfy this requirement. Having an Investment Policy Statement and ensuring a periodic, independent monitoring process is being performed can make all the difference.
3) If the fiduciaries lack investment and retirement plan expertise, they are required to hire an independent advisor to carry out these functions. Surprisingly, though, there are many plans in existence that either have not hired a retirement plan advisor, or have a financial advisor that doesn't specialize in retirement plans. Operating a plan without that appropriate expertise can easily lead to a breach of fiduciary duty.
4) Hiring a retirement plan advisor is a fiduciary act and should be done through a prudent, documented process. Selecting an advisor for your retirement plan is a big deal. Their selection should be performed through a prudent process and with only the participants' best interests as the basis for the decision. Ensuring this process is documented will show anyone asking (e.g. the DOL) that careful consideration was taken by the fiduciaries, reviewing their quality of service, fees, and retirement plan expertise. Documented or undocumented, however, hiring an advisor solely because they are a family member, old college roommate, or a representative of the bank that carries your loan is a prohibited transaction under ERISA and a clear breach of duty.
5) Fiduciaries are required to have a full understanding of all fees charged to the plan AND must periodically monitor these fees. Knowing all the fees charged to a plan, as well as ensuring they remain "reasonable" can be daunting tasks. Hidden fees, revenue-sharing between providers, and various investment share-classes are only some of the factors that make this a challenging process. But without this process in place, a plan could easily be paying more that is should. This lack of due-diligence has become one of the most common reasons fiduciaries have ended up in court. Expenses should be reviewed annually. The plan should also be benchmarked against competing service providers at a minimum of every 3 years to ensure that economies-of-scale are considered as the plan grows. Advisors specializing in retirement plans make these reviews a regular part of their service.
For a more thorough explanation of the above, and much more, you can read the DOL's "Meeting Your Fiduciary Responsibilities" directly on their website at www.dol.gov/ebsa/publications/fiduciaryresponsibility.html.
Summit Group of Virginia LLP is a full-service financial advisory firm located in Virginia Beach, VA. Craig M. Stanley, CPA QPFC leads our Corporate Retirement Plan Consulting practice, a fee-based and fee-transparent service which provides plan sponsors with an independent advisor and advocate to assist in overseeing all aspects of an organization's retirement plan. Services include the selection & monitoring of investment options, plan design, participant education, vendor selection, fee dissection, and fiduciary education. Summit Group also has the ability to serve as a fiduciary alongside our plan sponsor clients. Read more at www.summitgroupva.com/retirementplans.
Securities and advisory services offered through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Summit Group of Virginia are not affiliated. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.