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How Plan Sponsors Can be Better Fiduciaries (With or Without the Rule)

DWC 07/26/18

Whether a company is small or large, chances are it offers employees a 401(k). But this well-intentioned benefit has become target practice for attorneys, with lawsuits against companies ranging from those with $10 million to tens of millions in assets.

The uptick in litigation is likely due to the increased press from the recently vacated Department of Labor fiduciary rule. The Securities Exchange Commission recently released their proposed version related to advice which may also go nowhere as nothing really changes for investment advisors, and it appears brokers must only follow the ‘best interests’ protocol.  In other words, the SEC Fiduciary Rule is not really a fiduciary rule. DWC Managing Partner Keith Clark explores how plan sponsors can be better fiduciaries in the context of these requirements in this article published in Employee Benefit News.

Excerpts from the EBN Article:

  • Long before the proposed Department of Labor fiduciary and fee disclosure rules, plan sponsors were always the key fiduciary per the Employee Retirement Income Security Act of 1974. The DOL has also created a list of fiduciary responsibilities for plan sponsors, which is outlined in the full article.
  • Carrying out your fiduciary duties prudently more or less boils down to offering plan investments that meet your state benchmark or investment objective at fair fees.
  • Many in our industry misrepresent Section 404(c), as it is explained as a protection to the plan sponsor in regard to potential lawsuits from participants from the plan’s investment menu. The details are key here, especially with the investment menu. ERISA 404(c) only provides protection from a lawsuit related to the participant’s selected investments, while the plan sponsor is still on the hook for the investment menu.
  • Paying only reasonable plan expenses is the Department of Labor’s final commandment, but it is certainly not the least important as most litigation to date has been focused on excessive fees. Selecting a low-cost service provider often leads to more work for the plan sponsor and can potentially increase their risk related to plan document, compliance tests, and recordkeeping administration issues.

Read the full article about plan sponsor fiduciary responsibilities in the context of these legislative changes here.

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Topics: News, Fiduciary Responsibility


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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.