Plan sponsors need to increase their educational efforts and may find it prudent to engage an outside investment advisory firm as well as competent legal counsel so as to assume and delegate fiduciary responsibility for the advice provided on behalf of the plan, as well as plan participants and beneficiaries, ensuring that suitable guidance is provided with respect to guidelines pursuant to ERISA law.
GLG News
December 7, 2009
- Analysis by: GLG Expert Contributor
- Analysis of: 401(k) response to be automatic
- Published at: www.pionline.com
Summary
Plan sponsors need to increase their educational efforts and may find it prudent to engage an outside investment advisory firm as well as competent legal counsel so as to assume and delegate fiduciary responsibility for the advice provided on behalf of the plan, as well as plan participants and beneficiaries, ensuring that suitable guidance is provided with respect to guidelines pursuant to ERISA law.
Analysis
…As a result of the Pension Protection Act of 2006, conditions were developed in order to provide professionals the ability to provide specific investment advice rather than solely investment education. The PPA later requested that the DOL provide further clarification and more detail as to what would be considered permissible concerning advice rendered. … Effective November 19, 2009 the U.S. Department of Labor announced the publication of notice withdrawing the final rule on the provision of investment advice …
In general, the reason for withdrawing the final rule stems from issues concerning possible conflicts of interests with certain service providers and as to whether the associated exemptions proposed in the rule would adequately protect the interests of plan participants and their beneficiaries. …
From the standpoint of pension service offerings, most employers or Plan Sponsors to a pension plan are deemed to have fiduciary responsibility. … An employer or Plan Sponsor is considered a fiduciary with respect to an employee pension plan if the employer is named as a fiduciary in the plan, or if the employer exercises any discretionary authority over assets or with respect to the administration of the plan.
… Most importantly, Plan Sponsors have a duty to inform, providing participants with sufficient information to make investment decisions; furnish relevant data concerning benefits and plan provisions; and notify participants with respect to amendments to the plan.
… ERISA also imposes fiduciary obligations on anyone who promulgates or renders investment advisory service for compensation, or those having the authority or responsibility to render such advice, with respect to any pension plan money or property. ERISA maintains enforcement procedures that may be initiated in some circumstances, by participants, beneficiaries, as well as the U.S. Department of Labor for negligence on the part of fiduciaries or any service providers to the plan.
Necessary steps should be taken by all Plan Sponsors to establish guidelines for investment policy, participant education, and legal compliance. Although ERISA expressly permits trustees and other fiduciaries to appoint investment managers, as part of their fiduciary responsibility, Plan Sponsors should ensure that pension plan operations are monitored. It is also critical to establish procedures that clearly indicate that fiduciary responsibilities are being satisfied. Plan fees should also be reviewed to ensure compliance with sponsor prudence.
While 404(c) regulations do not specifically require participant education, Plan Sponsors should make reasonable attempts to provide general investment education, particularly since the U.S. Department of Labor provides guidance on how to provide investment education without creating fiduciary liability for investment advice. … Additionally, the new regulations are likely to increase the responsibilities of retirement Plan Sponsors as a whole.
Employers and Plan Sponsors should avoid providing individualized advice or assistance to plan participants and beneficiaries with regard to the selection of investment vehicles. Furthermore, if an employer or Plan Sponsor has not retained a registered investment advisor, a disclaimer should be provided in all related materials stating that the information is not intended to be specific investment advice and those participants are urged to seek advice from their own investment professional.
By actively managing the risks associated with participant directed plans through activities that include, but are not limited to; conducting annual fiduciary reviews; adopting written procedures concerning investment policies; and providing information through investment education, Plan Sponsors may be able to reduce their liability exposure and facilitate the process of managing their fiduciary responsibility.
Given the current status of the regulations with respect to advisory guidance provided to participants of tax qualified retirement accounts, Plan Sponsors need to prepare for additional investment rules that could potentially arise regarding defined contribution plans. It may also be prudent for Plan sponsors to … wait to see what the new requirements will be before safely assuming who may provide such investment advice to plan participants.
End Notes
Department of Labor Field Assistance Bulletin,
Employee Benefits Security Administration News
http://www.dol.gov/ebsa/regs/fab_2007-1.html
http://www.dol.gov/opa/media/press/ebsa/EBSA20091444.htm
None of the information or content contained herein is intended to create an investment advisory client relationship between the reader and the author. The information contained within this article is not be construed as personalized investment advice or a substitute for investment advice. Investments or strategies mentioned in this article may not be suitable for all individuals. All readers of this article should make their own individual decisions. The material contained within this article, does not take into account each reader’s particular investment objectives, financial circumstances, or needs. All readers should strongly consider seeking advice from their own investment advisor, tax practitioner, or legal counsel.
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