To avoid becoming the target of lawsuits and regulatory sanctions, companies must act now to make the extensive preparations necessary to deal with the new DOL rules. The first step is to conduct a full plan review, either internally or by using a consultant or adviser who is completely independent and is thus free of conflicts of interest.
Federal rules prohibit brokers from engaging in the fiduciary activity of advising employees on the suitability of specific investments. Despite this, brokers typically have the lead role in servicing 401(k) plans. Because brokers can’t be fiduciaries, the responsibilities for fiduciary duties for these plans — and the risks involved — stay with the employers.
By contrast, registered investment advisers (registered with the U.S. Securities and Exchange Commission) are legally permitted to be fiduciaries. Under the new DOL rules, service providers are required to disclose whether they are fiduciaries, and employers are required to ask.
These rules also require employers to evaluate newly required disclosures from consultants and providers concerning any compensation arrangements they may have with other companies. If service providers receive any compensation from plan providers, this could taint their advice.
Plan sponsors should be aware that their fiduciary responsibilities are expanding. More importantly, in most cases, they alone are responsible and not their current provider.
Please comment or call to discuss how this affects you and your organization.
- Fiduciary Revolution. (401kplanadvisors.com)
- Action Can Reduce Fiduciary Risk When Stock Markets Swoon (401kplanadvisors.com)
- Why Should 401k Plan Sponsors Care What Others Think About the Fiduciary Standard? (401kplanadvisors.com)