More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
“Fiduciary” is the keyword for retirement plan sponsors to keep in mind when making New Year’s resolutions for 2013, say legal experts who know the ins and outs of 401(k) and other defined contribution (DC) plans.
To start the New Year right, advisors in the world of the Employee Retirement Income Security Act (ERISA) should work on becoming better plan fiduciaries. That means setting aside time to provide fiduciary education and training to plan fiduciaries, write Bryan Cave LLP partners Edmund Emerson and Lisa Van Fleet in “New Year’s Resolutions for Plan Fiduciaries.”
Emerson and Van Fleet go on to quote David Wray, president of the Profit Sharing/401(k) Council of America: “The single most important role a plan sponsor serves is being a fiduciary. With increased complexity in plan design, communications, and investment selection, a fiduciary’s job is becoming increasingly challenging.”
Any ERISA fiduciary who fails to comply with the applicable standard of conduct may be held personally liable for any plan losses resulting from their breach, say Emerson and Van Fleet, which makes periodic training vital for all ERISA fiduciaries. “The simple act of providing fiduciary training to your organization’s ERISA fiduciaries will help establish a record of ‘procedural prudence’ and is the major step to minimizing fiduciary liability,” they write.
Ary Rosenbaum, an ERISA/retirement plan attorney for his firm, The Rosenbaum Law Firm P.C., also offers a set of New Year’s resolutions for plan fiduciaries, urging sponsors to use good file maintenance, conduct thorough reviews of current practices and to outsource what they can’t handle.
“A plan sponsor that wants no part of the fiduciary process of selecting investment options should hire an ERISA §3(38) fiduciary who will assume the bulk of the liability,” Rosenbaum writes in a note published on legal website JD Supra. “The same can be said of plan sponsors that want nothing to do with the day-to-day administration of their retirement plan. They should consider hiring an ERISA §3(16) administrator who will assume the bulk of the liability of plan administration.”
Here are five more top New Year’s resolutions for plan sponsors as fiduciaries, culled from the legal experts’ advice.
1) Keep all plan documents and good records.
Rosenbaum says file maintenance may sound pretty basic, but he notes that after 14 years in the business, he’s still surprised how many sponsors don’t have copies of all of their plan documents and amendments.
“Too many plan sponsors chuck their plan documents when they get a new one through a plan restatement, but the fact is that there are many times when a plan sponsor may need a copy of a previous plan document or amendment,” he writes.
For example, Rosenbaum says, a saved file may come in handy when a plan sponsor seeks a favorable determination letter from the Internal Revenue Service for a new plan document. Or, old plan copies are useful for the plan’s termination or for clarifying an ambiguity about benefits or provisions in a current plan document. Rosenbaum recommends going paperless and saving PDFs and emails.
2) Review ERISA bond and fiduciary liability insurance.
All retirement plans covered under ERISA must have an ERISA bond to protect assets from theft, Rosenbaum reminds plan sponsors.
“Make sure you have one in place,” he advises. “If not, contact your property and casualty broker. If you have a policy, make sure it’s for the right amount. The value of the bond must be equal to at least 10% of the total dollar amount of funds handled in the preceding plan year, but in all events not less than $1,000 and not more than $500,000 ($1 million for plans holding employer securities).”
Plan fiduciaries should meet periodically, Emerson and Van Fleet say, recommending at least quarterly meeting to consider information regarding plan investment performance, selection, and oversight of plan investments, investment managers, service providers and other plan administrative matters.
“Minutes of the meetings should be kept to help demonstrate that the fiduciaries have engaged in a prudent process of analyzing and assessing relevant issues,” they write.
4) Review and revise a plan’s investment policy statement.
The investment policy statement should establish guidelines and procedures for selecting, monitoring and removing investment funds and managers, say the Bryan Cave partners: “Plan fiduciaries must monitor the statement and keep it current to ensure investment decisions are made in a rational manner and to further the purpose of the plan and its funding policy.”
In addition, Rosenbaum recommends reviewing plan providers because sponsors are on the hook for providers’ errors.
“It’s their fiduciary responsibility to make sure they are doing the job they should be doing,” he writes. “That’s why plan sponsors need to resolve to review the work of their providers to make sure they are doing the work promised. Does the plan sponsor have a financial advisor who never offers investment education to plan participants or hasn’t shown up in years to review plan investments? Do they have a TPA who has trouble with compliance testing? Do they have an ERISA attorney who can’t spell 401(k)? Seriously, plan sponsors need to have their plan providers reviewed for competence.”
5) Review and monitor plan expenses and fees—and consider an audit to ensure compliance with the ERISA 404(c) and qualified default investment alternative (QDIA) requirements.
With the new Department of Labor regulations on fee disclosure, fiduciaries must make sure all required fee disclosures are made on a timely basis and that fees are monitored on a regular basis, according to Emerson and Van Fleet: “Fiduciaries should establish a policy for ongoing plan expense and fee monitoring and benchmarking.”
Further, they say, an audit helps ensure compliance with requirements: “ERISA Section 404(c) provides limited protection to fiduciaries of participant-directed individual account plans from fiduciary liability for participants’ investment losses; provided that the plan complies with the requirements described in 404(c).”
Read 401(k) Fee Transparency: Best & Worst Providers at AdvisorOne.