The Flooring Contractor
Has Your 401k or Other Retirement Plan Been
Reviewed? By Lance Wallach
Government officials now expect 401(k) plan
sponsors to conduct periodic due diligence reviews. With respect to their 401k or other
retirement plans, the problem is that most sponsors (owners) do not have the in
house resources to do so.
This is not something that 401(k) plans historically
did. On the heels of the recent mutual
fund scandals, though, Labor Department officials indicated that sponsors had a
duty to periodically investigate plans and benchmark funds and fees.
Baby boomers are now retiring, and their 401(k) accounts
often are their primary source of retirement income. A sponsor potentially could be liable for
less than stellar 401(k) account growth if employees can claim that he did not
meet his fiduciary duties.
Trusting the reputation of a major mutual fund company is
not enough anymore. Sponsors must
investigate and compare their plans to other programs at least every two to
five years, as well as demonstrate that their plan expenses are in line with
what others are paying. Blind trust is not prudent. You need a process, and you need to document
that process.
Every fiduciary decision has to be made through a careful
process. According to ERISA, the primary
plan fiduciary is the sponsor, i.e., the employer.
Therefore, it is the employer’s responsibility to ensure the
prudent selection and oversight of plan vendors.
Sponsors must monitor vendors in two ways: micromonitoring, which should occur
annually, examines plan features and services, while
macromonitoring every three years or so allows sponsors to benchmark with
competitors.
Smaller employers who comparatively lack resources and
manpower find it difficult to monitor vendors to this extent. Thus, owing to ERISA provisions that compel
bewildered sponsors to take on experts to help with due diligence, most small
to mid sized plans will need to hire consultants.
There is potential liability if due diligence reviews are
not conducted. Failure to engage in a
prudent process may breach fiduciary duties, which may render the sponsor
liable for damages. For example, if plan
participants pay fees that are higher than the current market rate because the
sponsor did not perform a review, that fiduciary could be liable for the higher
fees.
But as long as the sponsor can prove he did a proper
investigation, he can potentially shield himself from liability. The employer has to show that he engaged in a
prudent process and that he made a reasonable decision based on that
process. This applies to all retirement
plans, not only 401(k) plans.
Lance Wallach, CLU, ChFC, CIMC, speaks and
writes extensively about VEBAs, retirement plans, and tax reduction
strategies. He speaks at more than
seventy conventions a year and writes for over fifty national
publications. For more information and
additional articles on these subjects, call 516-938-5007/935-7346. The
information provided herein is not intended as legal, accounting, financial or
any other type of advice for any specific individual or other entity. You should contact an appropriate
professional for any such advice.
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