In 1996, an interpretive Bulletin 96 * 1, the Department of Labor (DoL) issued guidance concerning fiduciary advice and education for participants in that guidance the DoL state:

The Department also notes that a plan sponsor or fiduciary would have no fiduciary responsibility or liability with respect to the actions of a third party selected by a participant or beneficiary to provide education or investment advice where the plan sponsor or fiduciary neither selects nor endorses the educator or advisor, nor otherwise makes arrangements with the educator or advisor to provide such services.

 

Put another way, if the participant selects their own adviser to help allocate their investments the plan sponsor is not required to monitor the performance of the adviser. However, should the plan sponsor allow the service provider to advise and educate their participants, the plan sponsor is required to monitor the performance and products sold by the service provider.

 

The DoL will investigate cases based on the facts and circumstances evident. In other words plan sponsors will be liable for products sold and advice given should it be found that the products or advice was imprudent.  Care must be taken when a plan sponsor allows the agent or broker who sold them the plan to advise their employees (participants).  This will be seen as an endorsement of the agent or broker and requires monitoring of their performance and product sold.

 

Many agents or brokers see the 401(k) as a lead generation tool to sell additional high commission products. The 401(k) should be treated as an employee benefit and not a marketing gimmick. The DoL will protect plan participants and their beneficiaries.

 

Please comment or call to discuss if you must monitor the performance and products of your service provider.

 

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