The by product of minimizing your fiduciary responsibilities and risks si your employees will have the necessary tools to successfully retire. Remember the plan sponsor has an awesome responsibility to provide the best plan possible. The result is a happy and productive employee.
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Proactive Steps
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.
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Many insurance companies and brokerage firms are breathing a sigh of relieve over this announcement. In the end this will happen and perhaps hurt the financial institutions even more.
The initial proposal drew darts from numerous insurance and securities industry lobbying groups, including the National Association of Insurance Financial Advisers and the Financial ServicesInstitute who feared their salespeople would have to limit the products they could suggest for retirement plans.Various groups argued that retirement plan participants would see investment costs rise under the standard. They also said the Labor Department proposal would likely conflict with a separate fiduciary rule that the Securities and Exchange Commission is planning to govern brokers who give investment advice to individual clients.
The pension plan proposal also would have forced big brokerage firms such as Bank of America‘s Merrill Lynch & Co. and Wells Fargo & Co.‘s Wells Fargo Advisors to decide whether to limit their brokers from working with corporate retirement plans.
The Labor Department rule would not only limit brokers’ ability to recommend their companies’ own products to employers but prohibit them from collecting commissions from investment companies when employees purchase their funds or other retirement plan products without providing extensive disclosure.
Is everyone forgetting ERISA 404a ‘for the exclusive benefit of the plan participant and their beneficiaries’? It seems the financial institutions are more concerned with their own bottom line and the the best interest of the customer.
It is well documented that 401(k) plan sold by insurance comapnies and stockbrokers tend to be the most expensive in the industry. These business models are designed to sell product to the plan participants once the plan is sold. Although not all insurance agents or stockbrokers are deceptive there is no assurance that the conflict of interests are in the best interest of the employee.
In a statement to The Hill, Phyllis Borzi, Labor’s assistant secretary for EBSA, said investigations by Labor, the Securities and Exchange Commission, the Government Accountability Officeand others show that conflicts of interest for financial advisers result in lower returns and higher fees for investors.“Conflicts of interest and a lack of accountability are widespread in the marketplace for retirement advisory services. An adviser’s compensation is often directly tied to the specific investment recommendations that he makes, and there is a real danger that the adviser’s recommendations will not be based solely on the customer’s interest, but instead will reflect the adviser’s own financial self-interest,” Borzi said.
“Simply put, we are seeking to protect the millions of employers and small-business owners, workers and IRA holders who rely on investment advice by working to address these conflicts. We think this effort has merit and we are committed to getting it right.”
