Ethics and transparency are key in the 401(k) plan. This is why it takes a competitive advisor to help you decode the disclosures, fees and services that affect your 401(k) plan.
— In the last decade there has been more talk about the fees and services associated with 401(k) plans than ever before. People are not only more engaged, but retirement and investment professionals have an even greater fiduciary responsibility than they did previously.
When creating a 401(k) plan, plan sponsors have a responsibility to know how their plans will benefit all parties involved. In recent years, more responsibility has shifted to the shoulders of outside fiduciary retirement professionals. How they communicate what actually goes into a 401(k) plan as well as the fees and services is critical. When employers seek out retirement professionals to help them to build a 401(k) plan, they should be looking for the best. Most seasoned 401(k) plan experts provide many services.
Vic Berliant, of Berliant and Associates, a 37-year fiduciary retirement professional and 401(k) Plan expert says, “Companies need to know what fees they are paying and what services are provided.” When they engage the services of a 401(k) plan provider, the retirement professional should offer a plethora of services. These include “ERISA, 3(16), 3(21) and 3(38) fiduciary services, daily valuation recordkeeping services and custodian and trustee services. In addition to the core investments of mutual funds, the plan should also provide professional money managers who protect investors from large losses” Berliant notes, “By offering these services and investments, plan sponsors are protected from fiduciary liability issues and plan participants can be protected from large investment losses.”
This is never more evident than in the case of Tibble vs. Edison International; The court ruled in favor of the plaintiff. The main reinforced points of the court’s ruling were:
A. There is a fiduciary duty to monitor - Plan fiduciaries have an initial and ongoing duty to not only prudently select plan investment options, but also to monitor them.
B. Seeking of Mutual Fund Fees and Share Classes – There is a continual focus for 401(k) plan sponsors to offer investment share classes with the lowest cost.
This case created many similar cases and has placed a burden on the employer as it now has created a greater level of responsibility for the plan fiduciaries. So in addition to a fiduciary services company being knowledgeable about a company’s needs, they have to know how to apply the DOL regulations and communicate them to clients.
In an article by the Society of Human Resources Management, How the Fiduciary Rule Affects Retirement Plan Sponsors April 2016, by David Tobenkin and Stephen Miller, CEBS, state there is a ‘best interest standard’ that should be upheld. “The rule will require those providing investment advice to retirement plan sponsors and participants to follow the fiduciary standard of conduct under the Employee Retirement Income Security Act (ERISA).” The article conveys advisors may only offer advice that reflects loyalty to the “best interests” of plan participants and beneficiaries and must disclose any potential conflicts of interest. “Failure to do so means that advisors—and the plan sponsors that hire them—could be sued by participants and face ERISA-violation penalties.”
Further the article notes, “Currently, many advisors associated with mutual fund, brokerage and insurance firms that administer 401(k) and similar workplace plans are held to a weaker “suitability” standard, meaning recommended investment products must fit a client’s general needs and risk tolerance, but may result in greater rewards for the advisor than competing, lower-fee investments would.” Berliant notes “For years brokers and other advisors have not always provided their clients with the share class with the lowest fees. All that has changed under the best interest standard. Advisors must do what is in the best interest of the plan sponsor and its employees.“
“There are different share classes for mutual funds. Each share class has a different cost. As a result of the Tibble case, fees in 401(k) plans have become an issue and advisors have to use the lowest share class available. The executives of the company can become personally liable for excessive fees charged to plan participants. [We] remove that liability off the shoulders of the executives” and “always use the lowest share class available”, Berliant notes.
The Tobekin and Miller article stress “Imposing the fiduciary standard on plan advisors and increasing their potential liability may reduce their willingness to provide financial advice to plan sponsors and participants, those opposing the change have warned. Others view the expansion of fiduciary requirements as a needed safeguard against conflicted advice.” With these obligations, both the employer and the advisor have deep responsibilities in ensuring there are proper disclosures in place.
“Disclosures under the DOL Regulations 404(a) and 408(b)(2) are required to be provided to the plan sponsors and the plan participants. The information in these disclosures are often confusing and complicated to understand.” A competitive plan advisor will “decode these for the participants,” notes Berliant. Additionally, 401(k) plan advisors should “benchmark a client’s 401(k) plan to determine what services are currently being provided and what the fees are for those services.” This is the way to add transparency for the client and contribute both ethically and responsibly.
Berliant states that “The goal of a 401(k) platform should be to protect the client’s executive management from liability by providing full fiduciary services, provide the best low cost share class investments, provide professional money managers to protect plan participants from large losses, and provide daily valuation recordkeeping services as well as trustee services.”
To end, Berliant notes, “We are dealing with people’s money, but we are also trying to protect companies after what took place when the market crashed. We want to do the right thing for our clients and their employees.”
Name: Vic Berliant
Organization: Berliant and Associates
Phone: (415) 453-9200
For more information, please visit http://www.401kplanexperts.com
Release ID: 238921