Employer to Pay 500K for Failing to Monitor TPA

Remember a plan participant or their beneficiary can file a compliant with the DOL at no cost. If the DOL finds merit in the case they will sue the employer. Scary stuff which can be avoided by working with an independent fiduciary.

DETROIT, MI, - FEBRUARY 16:  The General Motor...
DETROIT, MI, - FEBRUARY 16: The General Motors (GM) world headquarters is seeen February 16, 2012 in Detroit, Michigan. GM announced it recorded its highest profit in its history, a record $7.6 billion for 2011with GM union members will each receive a $7,000 profit sharing check. (Image credit: Getty Images via @daylife)

A U.S. Department of Labor (DOL) suit alleged insufficient oversight and mishandling of plan assets resulting in multiple violations of the Employee Retirement Income Security Act (ERISA). Specifically, the suit alleged that Clark Graphics’ owners, Mary Clark, James Clark and Step

hen Clark, failed in their fiduciary responsibilities as plan trustees by neglecting to monitor the actions of the plans’ administrator. They also failed to review and reconcile the plans’ trust account statements, review participant distribution calculations and require the administrator to issue participant statements. In addition, Dowdell failed to maintain accurate records for participants in both plans; consequently, some participants have not received the correct retirement benefits.

“Employers that sponsor retirement plans have a fiduciary duty to monitor plan assets and ensure they are handled appropriately and protected,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “Contracting with an outside firm to manage those assets does not absolve them of their legal responsibilities.”

The order requires the restoration of all plan losses for which the defendants are liable plus appropriate interest. Specifically, Mary Clark has been ordered to pay back $142,797.23 to the Clark Graphics Defined Benefit Plan and $362,754.23 to the Clark Graphics Profit Sharing Plan. The judgment also permanently enjoins Mary and James Clark from serving as fiduciaries to any employee benefit plan subject to ERISA. 

The plan sponsor is ultimately responsible for the management of their company plan. Even if you outsource this work to professional fiduciaries you must monitor their work.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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Your Broker (Not You) Will Retire on Your Retirement Plan

The new fee disclosure regulations are effective July 1, 2012 for plan sponsors and September 1, 2012 for plan participants. These regulation are a solid step forward in reining in the excessive fees charges by service providers over the las t two decades. However, plan sponsors should consider the excessive fees charged regardless of the new regulations. These fees have a negative effect on their employees and themselves ability to successfully retire.

The plan proposed the most complex highway interchange attempted in Ontario to that point. (Photo credit: Wikipedia)
  • The average American household will pay, on average, almost $155,000 over the course of their lifetime in total 401(k) fees. In this economy, that would buy a pretty nice home.
  • The fees paid by 401(k) participants are 46 percent higher than fees required to manage the typical traditional pension plan.
  • Merely requiring the disclosure of fees, which new Department of Labor regulations effective on July 1, 2012 will do, will only “marginally reduce” excessive fees.
  • Employees believe that higher fees guarantee higher returns when the opposite is true. Lower fee index funds often have higher net returns than higher fee actively managed funds.

Many plan participants believe that their 401(k) plan is free to them. This is wrong. When the new fee disclosure regulations become effective later this year (2012) Plan participants will learn the truth. That is if they bother to look.

Please comment or call to discuss and learn this will affect you and your company.

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Failure to Monitor Fees is a Breach of Fiducary Duty

Your employees will begin to see what they are paying for in their 401(k) account. Are you ready to answer their questions? Will participants with larger balances be willing to subsidize their co-workers?

WASHINGTON - JANUARY 14:  Peter Orszag, Direct...
WASHINGTON - JANUARY 14: Peter Orszag, Director, Office of Management and Budget, listens as U.S. President Barack Obama speaks about the financial crisis responsibility fee in the Diplomatic Reception Room at the White House January 14, 2010 in Washington, DC. Obama proposed that the bank on Wall Street pay back taxpayers up 117 billion dollars for the bailout they received during the financial crisis. (Image credit: Getty Images via @daylife)

Certainly the facts of this case suggest there was something fishy about the arrangement.  However, it was not a development that occurred overnight and you can imagine how, over time, minor decisions related to costs and fees can compound into major problems for plan sponsors.  Plan sponsors should make themselves keenly aware of what fees and expenses can and cannot be charged to the plan and also make inquiries about the reasonableness of fees.  This case also serves as a reminder that regular review of fees (monitoring) is an important component of satisfying that fiduciary obligation and your plan should be reviewed on a regular basis to see if (1) you are being charged the correct amounts under your agreements, (2) those amounts are reasonable and (3) there are ways to reduces those fees.  Otherwise, you might end up paying back the plan. 

via employeebenefits.foxrothschild.com

Now is the time to address the fees in your plan. July 1, 2012 is fast approaching.

Please comment or call to discuss.

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5 Reasons to Shop Your 401(k) NOW

There is no better time than right now to shop your company qualified retirement plan. Regulations are changing daily and your employees deserve a top quality plan for them to successfully retire. You should ask yourself a question, are all of my employees on track to successfully retire? Avoid learning the answer after it is too late.

retirement (Photo credit: 401K)

1. Fee disclosure is here.   The plan fees that are in place on July 1, 2012 will be disclosed to your employees.

Seven in ten participants are completely unaware that they pay any fees at all to maintain their account.* Lower your fees and lessen the shock to your employees.

2.  More ways to get advice

The fate of millions of American’s retirement is dependent on the strength of their investment decisions, as 401(k) plans have far surpassed defined benefit pension plans.  

While you’re shopping – pick up an advisor who is able to give advice. Workers who received some form of help enjoyed average annual returns that were 3 percent better than workers handling their own accounts, according to the benefits consulting firm Aon Hewitt.

At the end of December 2011, the Department of Labor began allowing advice to be given by retirement plan advisors who meet one of two requirements: 1. The fees they receive must not vary 2. The advice must be generated from a computer model that’s been verified as unbiased.

3. Do it now. You’re going to have to do it anyway.
The new law requires you determine your plans “reasonableness.”  The best way to do this is to shop it.

The Department of labor recommends plan sponsors seek competitive bids on their company sponsored retirement plan every 3 to 5 years. This is not a requirement but is highly recommended. There are new alternatives that will reduce fiduciary risks and improve participant results.

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

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DoL Gets Tough on Retirement-Plan Enforcement

Retirement plans have received their fair share of attention since the great recession of 2008. The crisis in the public sector pension plans have contributed to this attention. Remember the 401(k) plan was originally designed as a supplement ot a pension plan they have now become the sole source of retirement for more and more Americans.

The seal of the United States Department of Labor
The seal of the United States Department of Labor (Photo credit: Wikipedia)

The Department of Labor’s Employee Benefits Security Administration (EBSA) has significantly raised its enforcement efforts against plan advisers and sponsors. In 2011 the EBSA closed 3,472 civil cases that brought in nearly $1.39 billion. It also closed 302 criminal cases that resulted in 129 individuals being indicted, and 75 cases closed with guilty pleas and/or convictions. This year the DoL is increasing its enforcement personnel from 913 to 1,003.Those numbers indicate that there is a lot of noncompliance with Employee Retirement Income Security Act fiduciary duties. According to the DoL, that is because many advisers are surprisingly still unaware that the DoL has jurisdiction over them, and many plan sponsors are unaware of their responsibilities as ERISA fiduciaries.

The Department of labor DOL is becoming more and more diligent in enforcing fiduciary compliance for retirement plans for employers of all sizes. With the proper professional fiduciary assistance plan sponsors need not be concerned.

Please comment aor call to dicusss how this might you and your company.

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401(k) Fee Disclosures: It’s Time for Employers to Prepare

Employers who are proactive and address the fee disclosure regulations will experience less questions from employees and less stress. This regulation will separate the good from the bad. You and your employees deserve a good quality retirement plan that is fairly priced. It’s not about being the cheapest it’s about receiving a good value for a reasonable price. Eliminate all the pay points that do not add value to your plan.

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Now is the time for employers to prepare for the August 30 deadline. Responsible plan fiduciariesand plan administrators should take the following steps now.

  • Determine which plans and which service providers are covered by the requirements.
  • Develop a plan for assessing the completeness of service provider fee disclosures when they are received and setup a communication link with the service provider to correct incomplete disclosures.
  • Clarify with service providers who will formulate and distribute specific participant-level disclosures, including integrating certain service provider disclosures into the participant-level disclosures.
  • Establish a procedure for notifying the Department of Labor if complete information can not be obtained.
  • Establish ongoing processes to review and document the steps taking during the preparation of the fee disclosures to participants.

Employers who are proactive with regard to the new 401(k) fee disclosure regulations will experience a smooth transition. Those who ignore preparation will become reactive to employees questions.

Please comment or call to discuss how you company can prepare for the pending regulations.

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DOL fiduciary crackdown on retirement advisors underway

Far too many financial advisors have sold 401(k)s as a lead generation tool. The 401(k) is a by product of their ability to sell high commissioned products to plan participants. Plan sponsors should be aware that allowing this action is another way of endorsing it. This could result in fiduciary liability. The 401(k) is far too important of an employee benefit to allow this. It is a benefit that must stand on it’s own.

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So far this year, the Department of Labor’s Employee Benefits Security Administration has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, said should serve as a wakeup call to advisors who advise retirement plansand plan sponsors.In 2011, EBSA said it had closed 3,472 civil cases and obtained monetary results of nearly $1.39 billion. EBSA also closed 302 criminal cases that resulted in 129 individuals being indicted and 75 cases being closed with guilty pleas and/or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.

Larson called those EBSA enforcement numbers “astonishing,” and warned that many advisors are surprisingly still unaware that the DOL has jurisdiction over them.

Most plan sponsors and retirement advisers are unaware of the focus by the DOL. As stated in this article most advisers are unaware that the DOL has jurisdiction over retirement plans. As the retirement crisis becomes more evident more focus will result in more audits and consequently more fines.

Please comment or call to discuss how this affect you and your company.

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408b2 Poses Concerns For B-Ds and Small-Plan Advisers

There will be many service providers looking for ways around the new fee disclosures rules in order to take advantage of plan sponsors and participants. This is unfortunate since the reason for the regualtions is to improve the quality of retirement plans offered to employers. If the retirement plan is to survive in the private sector the interest of plan participant must come first above all else.

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Roberta Ufford, principal at Groom Law Firm, said she agrees brokers must be cautious if they elect to state a range of fees. Ranges rather than specifics make sense for brokerage windows because so many compensation arrangements are possible, but broker/dealers must ensure their range numbers are realistic and standard for the industry.”When you use a range, it should be appropriate for the circumstance, she said. “[The] DoL intended to provide flexibility [by allowing ranges]  when more specific disclosure would be difficult to provide, and that can be a great thing, but if you’re trying to get a specific answer for when it’s OK to use a range instead of more specific information, there is no specific answer. So you really have to use a good-faith effort here.”

Ufford thinks the real problem could arise with small-plan advisers who may not have been disclosing detailed information about compensation. Many recordkeepers and other plan services providers already have systems in place to disclose specific indirect compensation because of Schedule C on Form 5500, which has required plan sponsors and administrators to report service provider fees and compensation for plan years beginning in 2009 (see “EBSA Issues Schedule C Fee Disclosure Guidance“).

There will continue to be confusion on fee disclosure, particularly when there is a brokerage window within the plan. Plan sponsors will never really know there fee disclosure information is complete or realistic when working with a broker dealer.

Please comment or call to discuss how this affect you and your plan.

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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.


  • U.S. 401(k) Disclosure Is Coming-What To Do In January (401kplanadvisors.com)
  • The 408(b)(2) Burden on Fiduciaries. (401kplanadvisors.com)
  • Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (401kplanadvisors.com)
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