Retirement plan sponsors have many questions about the Department of Labor’s (DOL) new fiduciary rule currently scheduled to start going into effect on April 10, 2017. The following are some common questions that plan sponsors have about the new rule:
Q: What is the new rule?
A: In essence, the new rule establishes that any individual or organization that receives a fee for making recommendations about investments, distributions, or rollovers to a qualified plan, a plan’s fiduciaries (like a planning committee), or any plan participant or beneficiary will become a plan fiduciary. Defined by the Employee Retirement Income Security Act (ERISA), a plan fiduciary must always act in the best interests of his or her client.
Q: What is changing under the new rule?
A: There are two basic types of financial advisors. Brokers and registered representatives of a broker-dealer are typically paid through commissions from the investments they recommend. Investment...
Retirement plan sponsors often struggle to get their employees to participate in their retirement plans and to save enough to provide an adequate retirement income. 2017 is finally here, and we are sharing five tips to encourage retirement savings in the new year:
Promote the value of saving. Consistently, steadily, and proactively promote your retirement plan and the value of saving for retirement. You should promote your plan in your new hire packets with a clear, short overview, and follow up regularly, particularly during open enrollment periods. Employee newsletters and company intranets also offer a way to engage your plan participants.
Auto-enroll your employees. Automatically enrolling your employees in your retirement program is a powerful tool to increase participation. According to T. Rowe Price, as of 2015, 51 percent of plan sponsors have adopted auto-enrollment, a 31 percent increase from 2011. And auto-enrollment has increased those plans’ participation rates to 88...
Many 401(k) retirement plan sponsors aren’t fully aware of their fiduciary duties regarding their company’s retirement plan. Fiduciaries are defined by the Employee Retirement Security Act of 1974 (ERISA), specifically in Section Three. The 21st definition describes the basic responsibilities of fiduciaries, leading them to be known as 3(21) investment fiduciaries. People who fall under the definition of 3(21) investment fiduciaries include:
Any plan or plan investment decision makers that weigh in on decisions including selecting investment options or hiring people to provide plan services.
Anyone who makes decisions about administering the plan, including decisions about eligibility, benefit claims, or providing benefit statements.
Anyone who receives payment in exchange for providing investment advice to the 3(21) plan.
Generally speaking, the plan sponsor falls into the first category, and plan administrators fall into the second. That means that anyone who is a fiduciary to the plan is a 3(21) fiduciary, including plan...
As a retirement plan sponsor, you should be aware that the Department of Labor’s (DOL) new fiduciary rule is scheduled to go into effect next year, but could potentially be delayed or revised under the new administration just elected. The new rule requires that most of the financial planning professionals who work with retirement plans act as fiduciaries, putting their clients’ best interests ahead of their own. Failure to act as a fiduciary creates significant liability for both sponsors and advisors.
Retirement plan sponsors are already fiduciaries for their plans, but they are able to outsource part of the liability they incur. Plan sponsors do need to understand that they can’t outsource all fiduciary risk – they are responsible for prudently selecting plan advisors and for prudently overseeing anyone they select. Outsourcing options include:
An ERISA 3(16) administrator: Created by the Employee Retirement Income Security Act (ERISA), a 3(16) plan administrator...
A 401(k) retirement plan is a significant benefit for employees who participate, their beneficiaries, and the employer that sponsors the plan. Administering a plan and managing its assets requires certain actions and involve certain responsibilities, and that often places employees in the position of being 401(k) fiduciaries.
Using discretion in administering or operating a 401(k) retirement plan makes the person who performs those tasks a 401(k) fiduciary. The fiduciary status is based on the functions performed for the plan, not just the person’s title. A 401(k) retirement plan’s fiduciaries ordinarily include:
The plan’s trustees
All members of a plan’s administration committee
All individuals exercising discretion or control in the administration of the plan
As you can see, 401(k) fiduciary responsibility can range fairly widely among a company’s employees. One of the primary duties for plan fiduciaries is the responsibility of acting prudently, which requires expertise in a number of...
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