Five-Step Process Toward Fiduciary Wellness
National Fiduciary Day is next week – March 23rd. If you subscribe to any employee benefits industry newsletters, blogs, or listservs, you may see a lot about it next week.
But why wait for one day? Is it sensible to pinpoint a single day to celebrate and recognize an ongoing, process-based responsibility? Of course not. With the nature of fiduciary responsibility in mind, we want to build toward National Fiduciary Day with a five-part series on Financial Wellness. Your employees’ wellness is critically important – and we’ll end up on that topic on Wednesday. But when’s the last time you checked whether your fiduciaries were well? Starting today and over the next few days, let’s see how we can help with that checkup.
Step 1: Understand Who Is Responsible for Your Plan’s Investments
The greatest source of potential liability for your fiduciaries is the Plan’s investments. Your employees’ funds secure positions in those investments. When things go badly – or when a plaintiff’s firm identifies that things could have gone better if you’d demonstrated a little prudence – your employees’ accounts suffer. With that suffering comes significant exposure.
It’s critical to know who bears the responsibility for selecting, monitoring, and maintaining your plan’s fund list. Who might it be?
- Your trustees, a committee, your owners, or someone else at your company? If you have not engaged someone who expressly accepts these fiduciary responsibilities, then they rest with someone (or multiple people) at your company. Keep in mind that fiduciaries bear the duty of prudence, which requires them to fulfill their responsibilities with the care, skill, diligence, and prudence of someone familiar with the matters. Are your fiduciaries familiar with share classes, revenue sharing, proprietary funds, collective investment trusts, to vs. through glidepaths, managed accounts, revenue equalization, etc.?
- Your recordkeeper or TPA? Highly unlikely. A fiduciary must acknowledge its status in writing. Absent a very rare circumstance in today’s marketplace, a recordkeeper or TPA will not also serve as a fiduciary with respect to your investments. It might offer up some separate fiduciary service or pair you up with someone else, but bear in mind that those quarterly investment reports from a vendor are no substitute for a fiduciary review of your investments.
- Your broker? Highly unlikely. The new fiduciary rule brought much greater awareness of the infrequency with which brokers serve as retirement plan fiduciaries. If you’re using a non-fiduciary broker to provide some help with your plan’s investments, bear in mind that the broker has not taken on any of the fiduciary responsibilities. That is, do not assume that the non-fiduciary broker is required to act in your interests.
- Your 3(21) investment advisor? That answer might surprise you. It is true that engaging a 3(21) investment advisor is a better and more helpful step than using a non-fiduciary broker. This provides you with an investment professional that must provide advice in your best interests and acknowledge that responsibility in writing. But be aware that you’ve not transferred any of these responsibilities to the advisor.
- Your 3(38) investment manager? Engaging a 3(38) fiduciary is the only approach through which you can actually transfer the fiduciary responsibilities to select, monitor, and maintain your plan’s core funds list. What is left for your trustees? To monitor the investment manager’s processes, which can easily be done by attending regularly scheduled meetings. One of the nation’s leading ERISA attorneys, Fred Reish, once said at one of our Qualified Plan Fiduciary Summits that hiring a 3(38) investment manager is great because you get all the fun, but without the responsibility. It’s a bit like being a grandparent.
We’ll talk more tomorrow about how your trustees can satisfy their duty to monitor an investment manager and on Monday about the need for them to receive education on the answer to this key question: Who is responsible for your plan’s investments? As you can see from above, many of the possible answers are simply wrong.
Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.
He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.
Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.
Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
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