Many Plan Sponsors are not even
aware of what the current regulations are
“I already have people for that” is a commonly uttered response…
Unfortunately, this attitude only underscores how exposed they actually are.
Cornerstone Plan Sponsor Consulting helps Plan Sponsors limit their liability, as they navigate through the tangled web of rules and regulations from the various agencies, including the DOL, SEC, ERISA and state regulators.
Even if you don’t take it seriously, the government regulators do.
The Department of Labor (DOL), Securities Exchange Commission (SEC), and state governments have been working on a Fiduciary Rule for the past few years.
Here’s how this Fiduciary Rule has been Developing:
1st - The DOL Fiduciary Rule was coming… Insurance and annuity companies fight the rule in court, (Because they could get hurt badly by the rules)
2nd - Court tosses entire DOL Rule… Plan Sponsors across the country breathe a sigh of relief… But, Not so fast
3rd - States start to develop their own Fiduciary Rules… A hodge-podge of various rules, some contradicting each other.
4th - The SEC Steps in with their Fiduciary Rule.
5th - States continue creating their own rules.
6th - The DOL announces they are coming out with a new and improved Fiduciary rule by the Fall of 2019.
Instead of a cohesive set of Fiduciary Rules by the DOL, we have a mess - State rules, SEC rules, and soon to be new DOL rules.
Let me correct that, we don’t have a mess, YOU, the Plan Sponsor has a mess.
And you think the salesman that sold you the 401k is doing anything to protect you? Or your TPA? Or the custodian that holds your 401k assets. If anything, they are doing the minimum of re-allocating from one fund to another within the Plan. That’s it.
Is anybody maintaining your Fiduciary File? Does anyone know what a prohibited transaction is? Who is documenting your participant education? (That is if you even have any.)
These and dozens more are the requirements of a Fiduciary, a Plan Sponsor.
And that is you.
Who’s really responsible for the plan?
Aids the Plan Trustees in Compliance with Fiduciary responsibilities. May provide:
● Works for the Plan Sponsor, not the Plan
● Compliance Review
● Cost analysis
● Performance analysis
● Plan with Enrollment, Education and Rollover seminars.
● Fiduciary File & Calendar
● Investment Policy Statement
● Policies & Procedures
● Annual reviews/Audits
● Standardized Checklists & Templates
● Monitoring of Fiduciary Score of Investments
● Dashboard of Educational materials, forms & docs
● Online storage all completed documents in one place.
The Majority of the responsibility (and liability) rests on you,
the Plan Sponsor,
- but your AIF Consultant is there to lighten the load!
Instead of trying to adhere to the
various rules, we aim higher,
by helping Plan Sponsors establish a
set of Best Practices.
So far, maybe you haven’t been audited or sued. Why should you go through all this bother?
According to ComplianceBug, in 2017, audits by the Department of Labor (DOL) resulted in 65% of the plans having to pay fines, penalties or make reimbursements to the plans due to errors.
Worse, their report showed the average fine was over $987,000, up 72% from the year before. And the DOL’s plan was to more than double the number of audits in 2018 over 2017.
For fiscal year ended 2015, the DOL reports that 67.20% of investigations “resulted in monetary results for plans or other corrective action.”
Here is a common breakdown of the
Fiduciary Responsibilities of a 401k Plan
What exactly are your responsibilities?
Demonstrates awareness of Fiduciary Duties
An expected ROR for each investment objective has been determined
Investments and services are consistent with governing documents
Asset Classes used are appropriate for the time horizon, risk level and expected ROR
Identified Conflicts of Interest and has addressed them
Selected asset classes are consistent with implementation and monitoring constraints
Roles & Responsibilities and Defines and Documented
Participant Education policy has been written
Agreements are in writing and reviewed periodically for adherence
Participant education follows written guidelines
Portfolio Assets are protected from Embezzlement
On-boarding of new participants policy
Periodic reports compare inv perf against index and IPS
Participant Service End policy
Periodic reviews are made of changes in Inv Adv, Inv Mgrs
Acknowledgement of Fiduciary Responsibilities
Periodic Reviews are conducted to ensure investment related fees are fair and reasonable
Annual Review of Policies & Procedures and Compliance
Control Procedures are in place to periodically review policies for trading and proxy voting
Establishment of Investment Policy Committee
Monitoring the 338 to ensure he follows the ISP and Safe harbor requirements
Oversight of IPC
Decisions about the investment strategy and types of investments are documented
Establishment and maintenance of Fidelity Bond
Reasonable Due Diligence process is followed to select each service provider
Investment provider acts as a 338 Fiduciary
The IPS contains sufficient detail to define, implement, and monitor the portfolio's Strategy
All of the decisions and actions have been documented and stored in a Fiduciary File
An Investment Time Horizon has been established
Appropriate for the participants
All decisions are made in accordance with written policies and procedures
A risk level has been determined for each investment and the portfolio
The pie chart is a generalization of what we have experienced. Your relationship with your 338 or 321 advisor may be different. It is our experience though that many 338 and 321 advisors focus only on the investments and not the Fiduciary File, policies & procedures, documentation and other fiduciary responsibilities listed above.
Some of the biggest ERISA settlements in 2018
ERISA settlements is according to BenefitsPRO 1/11/19
$15.4 million -
California Field Iron Workers Pension Trust
6 years of litigation, settled before going to trial
$25 million –
Plaintiffs allege they lost benefits when the had to sell shares in the ESOP plan when the company amended the plan
$21.9 million –
Breach of ERISA by including high cost funds managed by the firm’s companies
$24 million -
Alleged the bank violated self-dealing rules by using proprietary funds
$25 million –
Alleged that Plan Trustees breached the duties under ERISA
$30 million –
Liberty Mutual Retirement Benefit Plan
Alleged plaintiffs were denied were denied credit for time spent working at a subsidiary that was acquired.
$17 million -
Phillips North America
Plan Sponsors allegedly failed in Fiduciary Responsibilities
Offered only 1 money market for capital preservation
Offered expensive mutual funds when cheaper ones were available
Failed the obligation to monitor the investments.
Odds are your pension or 401k isn’t even as large as the penalties…
Yet these Plans all have something similar. They all have very good attorneys that didn’t get them out of the trouble they were in. The other things they likely had in common was a lack of supervision, monitoring and taking their fiduciary responsibilities seriously.
Sounds familiar? Think your attorney is better than their attorneys?
Think the salesman that sold you your plan is doing everything required of a fiduciary?
Think you are all set, because you have your plan with XYZ company? (These plans were probably with better companies.)
What they probably didn’t have was an independent review
of their plan done on a regular basis.
This is what Cornerstone Plan Sponsor Consulting does
for companies of all sizes.
Bottom line: If You Can’t Answer These Questions:
● Who Are the Plan’s Fiduciaries?
● What are the Fiduciaries’ Responsibilities? Is it documented and acknowledged?
● Who maintains your Fiduciary File and What is in it?
● How do you prove you have given the Plan Participants the proper, ongoing investment education?
● What is a Prohibited Transaction?
● How often do you review fees and performance and is it documented?
● Do you know the risk level of the choices in the plan? Do the participants? How is it measured?
● Do you have a Policies & Procedures Manual?
● Do you have documentation of all decisions and notifications?