DOL Cracks Down on Retirement Plan Advisors for Fiduciary Negligence

Most retirement plan advisors in the small to mid market use the 401(k) as a lead generation tool. Once sold to the employer the broker sells high commissioned products to plan participants. Most of these advisers are unaware of their fiduciary responsibilities. This will change will new regulations. The 401(k0 model must change to more of a employee benefit, striving to rreplace the participants income at retirement. This measurement has been largely ignored.

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Columbia Management Learning Center warned plan sponsors in a recent white paper that they have a “fiduciary responsibilityto keep their plan in compliance with DOL rules and regulations at all times.”Because of the increased number of DOL enforcement staff, “the chance that the DOL could audit your plan is increasing,” the white paper warns. “There is every indication the DOL is escalating audits of small plans,” the paper says.

The paper also notes that during 2010, the DOL audited more than 3,100 plans and found that:

  • More than 73% of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.
  • 96 individuals (e.g., plan officials, corporate officers and service providers) were indicted for offenses related to their plans.
  • From the audits, we can conclude that a very small percentage of plans have true “bad guy situations”; the majority of violations generally come from oversight, errors and omissions by plan sponsors.

Many advisers and plan sponsors are unaware that the Department of Labor has jurisdiction over them. When the new fiduciary standard is implemented very soon those advisers affiliated with broker dealers may cease to advise plan participants. The need for advisers following the fiduciary standard will grow dramatically.

Please comment or call to discuss how this affects you and your company sponsored retirement plan.

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