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...
The roles and responsibilities of retirement plan consultants are being carefully scrutinized this year, with the Department of Labor’s (DOL) new fiduciary rule scheduled to go into effect next year. In essence, the rule would expand the circumstances in which broker-dealers, investment advisors, insurance agents, retirement plan consultants, and other financial service providers are treated as fiduciaries. Fiduciaries are required to place a client’s best interests before their own interests.
Why should plan sponsors be concerned about whether or not their plan advisors are fiduciaries? A September 2016 study released by the Institute for the Fiduciary Standard provides some compelling information about the importance of the fiduciary role.1 The study looked at 135 registered investment advisory (RIA) firms and nine very large financial services firms. Using each firm’s Form ADV, which all RIAs and large financial firms file each year with the Securities and Exchange Commission (SEC), the study compared each...
Retirement plan sponsors will need to understand what a 401(k) fiduciary means for their qualified plans, since a new Department of Labor (DOL) rule that expands the scope of plan fiduciaries for retirement accounts, like 401(k) plans, will go into effect in April of 2017. Many 401(k) plan sponsors don’t know who holds fiduciary responsibility for their plans, or how the new changes will affect their plans’ oversight and administration.
What are brokers?
For example, many sponsors are confused about the difference between brokers and advisors. Brokers are people who sell financial products on behalf of another and are paid by commission. Each investment decision is a transaction for which the broker is paid. Brokers may provide consultation and advice, but the relationship is based on transactions. Brokers typically hold a Series 63 registration, along with a Series 7 or 6 registration, to sell securities.
The new DOL rule recognizes that...
Many plan sponsors don’t understand their fiduciary responsibilities, and they also don’t understand the difference between 3(38) investment fiduciaries and 3(21) investment fiduciaries. But now, it’s more critical than ever for plan sponsors to understand their roles and the roles of any advisors they hire. The new Department of Labor (DOL) fiduciary rule that takes effect next April will require all financial advisors for 401(k) plans, individual retirement accounts, or other qualified retirement savings to make recommendations that are solely in the best interests of clients.
Plan sponsors need to take note of this ruling. A fiduciary can be held responsible for plan losses if they don’t prudently manage plan assets, and plan administrators are automatically plan fiduciaries. However, there are other types of retirement plan fiduciaries, with different levels of responsibility, that can help plan sponsors address fiduciary risk.
Created by the Employee Retirement Income Security Act (ERISA)...
Helping retirement plan participants prepare for retirement is more important than ever, according to the 2016 Willis Towers Watson US Retirement Plan Governance Survey.1 In addition, the survey also noted that more and more plan sponsors are engaging third-party retirement plan consultants to assist them with their plans. That suggests that retirement plan consultants need to incorporate employee financial wellness into their services if they don’t already offer such programs.
According to the survey, 39 percent of companies that responded view workers who are unable to retire in a timely fashion as a top risk for their plans. This percentage is expected to increase to 44 percent over the next two years, showing a growing concern for financial wellness and retirement readiness. Among companies that only offer a defined contribution plan, like a 401(k) or 403(b) plan, that number jumps to 58 percent, making it the top concern. In comparison, only...
Retirement plan sponsors of universities around the country are facing lawsuits over allegedly allowing unreasonable expenses and investments with high costs and poor performance. Among the universities facing suits are Yale, the Massachusetts Institute of Technology, Johns Hopkins University, Cornell University, Duke University, Columbia University, Northwestern University, the University of Pennsylvania, the University of Southern California, Vanderbilt University, and Emory University. These 403(b) plans are retirement plans that are similar to 401(k) plans, but are used for tax-exempt organizations, some public school employees, and some ministers.
The suits allege that these 403(b) retirement plan sponsors are failing in their fiduciary responsibilities. Some of the charges include:
Investments that duplicate each other in asset class and investment style
Using several separate record keepers (as many as three in some cases)
Paying recordkeeping fees based on the assets in the participant’s account rather than a per participant charge
Forcing the use of specific...
The Department of Labor (DOL) has released new rules requiring new levels of fiduciary responsibility that will affect employer-sponsored retirement plans. As a result, many plans are adding a 3(21) investment fiduciary or a 3(38) investment fiduciary to help them address the new rule. The Employee Retirement Income Security Act (ERISA) defines 3(21) and 3(38) investment advisors and the services they offer.
The DOL rule itself is complicated, but it is intended to expand the group of financial professionals who must act as fiduciaries – acting solely in the best interest of their clients – when giving advice regarding investments. Under the new rule, which becomes effective in 2017, anyone providing investment advice for retirement plans must act as a fiduciary.
Limiting liability That means more and more plan sponsors are turning to 3(21) and 3(38) advisors because these financial professionals act as plan fiduciaries and help to limit the fiduciary...
The Department of Labor’s new fiduciary rule doesn’t go into effect until April 2017, but plan sponsors are already concerned about their fiduciary responsibilities, according to the 2016 Plan Sponsor Attitudes survey conducted by E-rewards for Fidelity Investments. Many prefer to use a 3(21) fiduciary, who makes plan recommendations but doesn’t act without informing the plan sponsor.
Plan sponsors rely on fiduciaries
Overall, 87 percent of the survey respondents use an advisor or plan consultant. Thirty-eight percent of survey respondents cited concern about fiduciary responsibilities as their top reason to begin using a plan advisor. Other reasons for using plan advisors included help with plan investments (32 percent) and needing a better understanding of how the plan is working for participants (20 percent). A majority of respondents (72 percent) were satisfied with their plan advisors, and this number has steadily improved since 2010, when 57 percent of the plan sponsors...
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