LUTZ BUSINESS INSIGHTS
On February 3, 2017 President Trump issued a memorandum ordering the Labor Department to review the “fiduciary rule” that is slated for partial implementation on April 10, 2017 with full implementation on January 1, 2018. While most expect there will be a potential delay, the final outcome is still not clear.
The rule was designed to require financial advisers of retirement plans to acknowledge their fiduciary status. As such, they would need to disclose any potential conflicts of interest, meaning that they would now be bound by law to act in the best interest of their customer. The rule does not change the plan sponsors existing fiduciary duty to their employees under ERISA, but would hold advisors to a higher fiduciary standard. A delay would mean business as usual where advisors may proceed as a non-fiduciary.
REVIEW YOUR PLAN DESIGN AND INVESTMENT DIVERSIFICATION
Companies evolve over time, including periods of growth or downsizing, so retirement plans may need to be adjusted accordingly. Plan sponsors should review their retirement plan design every few years to ensure that it still fits their company’s goals and employees’ needs. As a part of this review, you should make sure the plan offers a proper investment lineup allowing your employees to build a fully diversified portfolio.
REVIEW YOUR PLAN EXPENSES
Deciphering exactly what you are paying in plan expenses can be difficult for plan sponsors and participants to determine. Fee disclosure regulations of 2012 require plan providers to show details of the fees they charge. This has made fee information readily available to plan sponsors and participants. As a plan sponsor, make sure you are reviewing these fee disclosures and evaluating the various services you are receiving independently. You are not required to pay the lowest plan expenses, but the fees must be reasonable for the level of services received. What is deemed to be “reasonable” is somewhat of a grey area determined by many things such as services received, amount of assets, employee count, and plan design. Thus, it is critical to have a documented decision making process in place to evaluate plan expenses.
UNDERSTAND YOUR RESPONSIBILITY [SHARE CLASSES, REVENUE SHARING AND PROPRIETARY FUNDS]
As a plan sponsor, it is your duty under ERISA to act prudently in the selection and continued monitoring of the plans’ investments. That includes determining the proper share class of mutual funds used in the plan. Making sure you have the lowest cost share class available can help as you document a prudent decision making process. Again, if you don’t know, ask your provider what share class you have and what share classes are available to you.
Funds that pay revenue sharing and 12b-1 fees tend to be more expensive. This can also make it difficult for plan sponsors and plan participants to determine the fees attached to a specific service. In many cases revenue sharing funds are used as a way to provide additional revenue to record keepers, third party administrators, and advisors.
Also, review the use of proprietary funds provided by your service providers. Ensure the funds are in your plans investment lineup based solely on merit and not for some alternative reason such as providing your record keeper with additional revenue. Transparency is critical. The lack of plan sponsors having a process to determine excessive fees, expensive share classes, and the use of proprietary funds have all been common areas of recent litigation.
GET YOUR PLAN REVIEWED
A common misconception is that many plan sponsors feel that they have delegated their fiduciary responsibility to the plan providers. In reality, these plan providers are hired to perform a specific service at the direction of the plan sponsors…where the ultimate liability still rests. Now is the time to review your plan and answer the following questions:
☐ Is my advisor a fiduciary?
☐ Has my plan design evolved with my company?
☐ Is my investment lineup diversified?
☐ Am I in the proper share class?
☐ What are my total plan expenses?
☐ Is my plan documentation adequate?
ABOUT THE AUTHOR
CHRIS WAGNER, CHFC®, CFP®, CPFA® + INVESTMENT ADVISER
Chris Wagner is an Investment Adviser at Lutz Financial. With 15+ years of relevant experience, he specializes in providing company and corporate retirement plan consulting and investment advisory services. He lives in Elkhorn, NE, with his wife Kristin, and children Brynn and Owen.
AREAS OF FOCUS
- Retirement Plan Consulting
- Investment Product Analysis
- Provider and Fee Benchmarking
- Fiduciary Guidance
- Plan Design Analysis
- Investment Advisory Services
- Participant Education
AFFILIATIONS AND CREDENTIALS
- National Association of Plan Advisors, Member
- CERTIFIED FINANCIAL PLANNER®
- Certified Plan Fiduciary Advisor®
- Chartered Financial Consultant
- BSBA in Marketing, Midland University, Fremont, NE
- American College of Financial Services, Bryn Mawr, PA
- Knights of Columbus, Member
- St. Wenceslaus, Volunteer Coach
- Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!
- Selecting and Monitoring Service Providers
- Strategies to Minimize Fiduciary Liability
- 3(21) and 3(38) Fiduciary Services
- Tips for Administering a Prudent Retirement Plan
- The 2017 To-Do List for 401(k) Plans
- October 1st Safe Harbor 401k Deadline
- How Are You Paying the Company's Retirement Plan Expenses?
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