What Every Plan Sponsor Should Know

Your Solution

ERISA allows plan sponsors to:

• Hire independent, third party, money management advice; and
• Hire and provide this type of consultant both to the Plan and to individual participants.

401K Plan Advisors is an independent registered investment advisor firm. Our firm has the experience and in-depth investment management experience to help you take steps to ensure your company remains compliant with ERISA and ever-changing regulations.

Plan sponsors should delegate to protect themselves

If there is litigation, or if the Department of Labor does come in and has an issue, the plan sponsor can have a third party expert work with them to design a solution that will help protect the plan sponsor and, in many cases, virtually eliminate investment fiduciary liability. A plan sponsor, however, always retains the duty to select, monitor and replace the investment manager.

Few advisors are willing to be fiduciaries

Few advisors to retirement plans will accept transfer of such significant fiduciary responsibilities and liabilities. There are many court cases where such large firms as Merrill Lynch and John Hancock have proved that they were NOT fiduciaries to the plan.

The majority of advisors offer plan sponsors only ‘salesperson-like’ assistance in fulfilling the plan sponsors’ investment fiduciary duties. This assistance often consists primarily of busy work. These services often do nothing to help plan sponsors protect themselves from the substantial responsibilities and liabilities they carry under ERISA.

The “co-fiduciary” advisor: Buyer beware

Given the recent press and media attention, as well as Congressional investigations regarding retirement plans, many plan sponsors have become aware that the advisors to their plan should be fiduciaries to their plan. This has not fallen on deaf ears in the retirement plan industry, which has created a new marketing gimmick: the co-fiduciary.

The phrase “co-fiduciary” has been used to turn non-fiduciary broker-advisors to retirement plans into fiduciaries. However, the term has nothing to do with the legal meaning of a co-fiduciary under ERISA law.

Brokers/advisors using “co-fiduciary” in their brochures, accept no transfer of responsibilities, so there is no mitigation of liabilities for the plan sponsor. Such brokers/advisors simply refuse to accept the significant responsibility and liability for the selection, monitoring and replacement of plan investment options. This refusal leaves the plan sponsor standing alone.

The choice is clear

It makes sense for the sponsor of retirement plans to hire an independent investment manager and transfer substantial fiduciary responsibility and liability to that qualified advisor. Sponsors that elect this course of action are no longer liable for selecting, monitoring and replacing plan investment options. These plan sponsors do, however, retain the responsibility to monitor the investment manager.

The other choices are to retain a:

• Plan investment advisor that is an ERISA section 3(21) “co-fiduciary” and receive no relief from fiduciary responsibilities and liabilities for selecting, monitoring and replacing plan investment options; or
• Non-fiduciary advisor and receive no relief from any fiduciary responsibilities and liabilities at all.

This choice is an obvious and easy one when plan sponsors are fully informed.