Plan sponsors want help with DOL fiduciary duties

Firms look to retirement advisers to be experts on the law, and even sometimes on their investments

Mar 19, 2017 @ 12:01 am

By Liz Skinner

Plan sponsors worry about participants suing over inferior investment choices or high fees. At the same time, they're anxious about the Labor Department or Internal Revenue Service finding fault with their plan design or processes. They want advisers who are experts on the intricacies of the laws governing retirement plans, as well as a partner to share the stressful liability.

"I'm looking for some [cover] on my fiduciary responsibilities," said Jim Richardson, financial analyst and plan administrator for Diversicare Healthcare Services Inc., a nursing home company with a $28 million 401(k) plan. "I need them to keep me apprised of what's in the pipeline of what's coming down from the DOL."

The Labor Department fiduciary rule due to take effect in April will raise investment advice standards in retirement accounts such as 401(k)s. Even though it may be delayed or thrown out by President Donald J. Trump's administration, it has helped to pique the interest of plan sponsors about the obligation to protect plan participants.

Additionally, litigation targeting corporations and universities for breach of fiduciary duty related to their retirement plans has ramped up during the past year. In one case last month, JPMorgan Chase & Co. was sued by a participant in its $21 billion 401(k) for allegedly causing employees to pay extra in fees for proprietary funds when other companies' alternatives would have been cheaper and performed better.

Nationally, plan sponsors have identified fiduciary concerns as their overriding issue when selecting an adviser.

About 38% of plan sponsors report they are most concerned about having an adviser who can help with their fiduciary duty, according to a Fidelity Investments survey released in August. Only about 24% of plan sponsors were worried about that issue in the previous year's survey.

Seven out of 10 firms said an adviser's willingness to undertake fiduciary responsibilities was "important," the survey of 976 plan sponsors found.

"We want an adviser who is willing to act as a fiduciary so that in the event we are sued or something is wrong with the plan, that they have some skin in the game," said Robert Young, controller for the Environmental Defense Fund. "We need to know they are looking out for the best interest of the plan and not necessarily for their friends or comrades in the industry."

Hard to find good help

The environmental group fired its last retirement adviser more than a year ago because he wasn't a fiduciary and he wasn't responsive to its questions about fees in the plan. EDF has an $80 million 403(b) plan for its employees, and a separate 457(b) plan for highly compensated individuals.

Two other issues came up frequently with plan sponsors when they were seeking an adviser. About 32% wanted help with plan investments and 20% were looking for a better understanding of how well their 401(k) plan was working for employees, according to the most recent Fidelity Investments survey.

About one-quarter of the plan sponsors said they currently are looking for a new adviser.

Dwyer Instruments Inc. went shopping for a new adviser a few years ago in part because it wanted help with the investments for its 401(k) plan. At the time, the company's record keeper also managed some of the funds in the plan, creating a conflict of interest.

"I would never get a recommendation to put a fund on a watch list even if it was underperforming," said Tom Alexander, Dwyer's corporate director of human resources.

The commercial instrument maker's new adviser helped Mr. Alexander revamp the plan, eliminate the conflict and create an investment policy statement with parameters for replacing funds and putting them on watch lists.

The adviser also increased the level of education that employees receive, including holding one-on-one discussions with the staff.

Under the new adviser, participation in the plan jumped to more than 70%, from less than 40%, Mr. Alexander said. Assets in the plan increased from about $350 million to over $1 billion today.

For some plan sponsors, the top priority is making the plan work better for participants.

encouraging participation

Companies today are more willing to pay for employee education and tools that can help change employee behavior and boost participant rates, said adviser Daniel Bryant, CEO of Sheridan Road Financial.

Plan sponsors also are increasingly receptive to plan design changes and features that help build up individuals' retirement savings.

"We have a systemic problem in this country in that an entire generation is ill-equipped to retire," Mr. Bryant said. "People are working longer because they can't afford to retire, and that increases costs to the company and can lower its productivity."

Some retirement advisers said plan sponsors value the partnership that advisers provide, as well as the help making the thorny details of the Employee Retirement Income Security Act understandable.

"We work as an advocate for them with providers, as well as with the participants," said Jamie Greenleaf, principal and lead adviser with Cafaro Greenleaf. "They appreciate that we take work off their desks and simplify the complex."

Kurt Laubinger, president of Potomac Wealth Management, said plan sponsors are grateful for the little things that an adviser takes care of, such as jumping on conference calls between the record keeper and the company to make sure both are on the same page.

Several advisers agreed that plan sponsors don't want to get too into the nitty-gritty of benefits law.

"Knowing the nuances of what we do, and the ERISA rules, isn't always top of mind for them," Mr. Laubinger said. "Providing honest and unconflicted support is what's valuable to them."

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