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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As a 401(k) plan sponsor, did you know that you must be prudent when you endorse service providers or products related to your retirement plans?

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:

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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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