You may be confused by the recent news about the DOL Fiduciary Rule: Was the rule declared invalid? Will the SEC move ahead with its own Fiduciary Rule? Will the Supreme Court issue a decision? Your confusion is appropriate as the status and future of the DOL Fiduciary Rule is still in flight. However, one constant remains and that is the Plan Sponsor’s fiduciary duty to the Plan and its participants.
ERISA and the DOL
The DOL’s Fiduciary Rule was finalized in 2016 and was supposed to go into effect at the start of 2018.
This rule was designed to eliminate financial advisor conflicts of interest when dealing with client retirement accounts. While it had provisions relating to 401(k) plans, it’s important to remember that any delay or even the possible nullification of the rule does not impact the fiduciary duties of a 401(k) plan sponsor.
Any financial advisor who works with plan sponsors can help ensure that their clients are aware of this.
A sponsor’s fiduciary role
ERISA cites five standards of fiduciary care on sponsors of retirement plans. These boil down to the fact that a plan sponsor must make all decisions with the best interests of the plan participants in mind.
One key standard that has received attention in recent years is the responsibility to keep expenses low for plan participants.
While there is no firm standard for this, this issue has been the basis of a number of lawsuits against plan sponsors. Most of these suits have been brought against large employers, however, in recent years, even smaller plans have not been immune.
Reach out to clients now
Periods of market volatility signal good opportunities to reach out to your current and prospective clients.
Start by confirming that their current plans are low cost and perform relative to their asset class peers. Find out:
- Are all fees and expenses transparent, both those that are paid from the participant’s accounts and those paid by the sponsor?
- Is there a process in place to select, monitor, and (when needed) replace investment choices?
Ideally, your client has an Investment Policy Statement in place for the plan. A solid, consistent, and documented investment process is a great way to demonstrate that the sponsor is acting in a responsible fiduciary capacity.
Beyond just meeting their fiduciary obligations, savvy plan sponsors want to provide the best possible retirement vehicle for their employees (and themselves) to ensure that employees can retire on time.
Advisors are also fiduciaries
As an advisor you have two options as a fiduciary.
A 3(21) fiduciary serves as a co-fiduciary with the plan sponsor making all final decisions as to the plan’s investments and other decisions including the selection of service providers.
A 3(38) fiduciary has the discretion to make all investment and provider decisions; this is delegated to the advisor by the sponsor.