GAO: Plan Fiduciaries Should Give Better Warnings

The GAO says the Labor Department should change the pending definition update to require that plan service providers give clear, prominent, standardized warnings in situations in which they are not undertaking to provide impartial investment advice.

The department also should change interim disclosure regulations to require that providers disclose compensation and fiduciary status information in a standard format, and it should change investment education guidance to control efforts by providers to highlight their own products in plan education materials, the GAO says.

“Labor could consider a variety of steps to address this potential conflict of interest, such as requiring service providers to disclose that they may have a financial interest in the options highlighted or prohibiting them from using proprietary funds as examples,” Charles Jeszek, a GAO director, writes in a letter summarizing the GAO’s views.

No comprehensive data on the prevalence or impact of service provider conflicts of interest is available, but experts told the GAO that even conscientious plan sponsors may not know whether a service provider is acting in its own interests or in the plan’s interests, or whether the provider’s compensation will depend on the investment options chosen, Jeszek says.

Similarly, providers should tell plan participants when they are acting as ERISA fiduciaries and when they may have financial interests in the outcome of investment purchase transactions, Jeszek says.