Front Line Fiduciary - A Fiduciary Fear: Putting Yourself and Your Plan at Risk
Steven Kaczynski, CFA, CPFA, AIF®, MST, MBA
In recent years, there has been an alarming increase in retirement plan related lawsuits. They are the product of ever-evolving regulations coming from the Department of Labor as well as increased attention toward company retirement plans coming from planned participant suits and court decisions.
In 2020, there were more than 200 class actions filed under the Employee Retirement Income Security Act (ERISA), an all-time high. It was an 80% increase over 2019 and more than double the number of 2018.
Under ERISA, fiduciaries must act solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them. Failure to comply with these duties can result in:
Removal from your fiduciary role
Personal liability for plan losses
Possible civil penalties and, in certain circumstances, criminal prosecution, fines, and imprisonment
Laws change: So do best practices.
The courts and the Department of Labor (DOL) continue to generate confusing and inconsistent rules that companies, benefit plans and plan fiduciaries must follow.
For example, fiduciary selection and review of target date funds is now one of the hot topics for congress, particularly when the funds are used as the plan’s qualified default investment alternative (QDIA). A letter in early May from the Senate Committee on Health, Education, Labor and Pensions to the Government Accountability Office requested that it conduct a review of target date funds (TDFs).
While some believe these managed funds help inexperienced investors, others believe they amount to a time bomb that holds too much risk near the target retirement date. Much of the discussion on risk is to what extent retirement age participants who invested in TDFs have been affected by market fluctuations as a result of the COVID-19 pandemic.
In another development, the House Ways and Means Committee recently passed by voice vote H.R. 2954 or as it is called, the Secure Act 2.0. This Act would raise the required minimum distribution age from 72 to 75, expand automatic enrollment in retirement plans and permit 403(b) plans to use Collective Investment Trusts (CITs). If finalized, Fiduciaries will be required to handle such plan changes.
Process is critical
What matters most in any plan administration is the process followed, not the decision reached. The best protection plan fiduciaries have against a lawsuit is following a carefully contemplated, consistently applied and well-documented process. Many recent court cases resulting in large settlements have been a result of poor documentation of plan committee deliberations or an inability to show prudent decision-making.
Expertise makes the difference
Today’s complicated rules and changing regulations require an advisor that specializes in retirement plans – rather than a firm which does so on the side. With so much at risk, a Fiduciary Advisor must have the highest level of expertise. They must perform their duties with care, skill, prudence, and diligence.
If you are uncertain about the possible litigation risk associated with your current plan, an audit of your process and plan documents may be needed. Important questions will need to be answered: Are you offering what your participants need to reach their investment goals? Are you offering education, administrative support? Are you sending participants required notices in a timely fashion?
The weight of responsibility can be ominous. Offering a qualified retirement plan comes with great personal responsibility that plan sponsors and administrators must follow to avoid lawsuits or regulatory sanctions. Trying to stay on top of these rules and opinions can be daunting, and failure to do so can be costly.
However, with proper guidance and support from an expert fiduciary, your fiduciary fears should be substantially minimized.
Steven Kaczynski, CFA, CPFA, AIF®, MST, MBA
Senior Financial Advisor
Associate Director, DBR Fiduciary Plan Solutions
DBR & CO
Steven Kaczynski is a Senior Financial Advisor at DBR & CO, a Pittsburgh-based wealth management firm. If you would like to contact the author, please e-mail him at firstname.lastname@example.org or call 412-227-2800.
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