401k Fiduciaries’ Duties and Not so Safe Harbors

401k fiduciaries fiduciary trouble 401k fiduciary on bridge over trouble

Does your advisor, recordkeeper or plan provider give you an evaluation of your plan based on proprietary analysis? I once looked at a plan where over 80% of the investments in the plan under independent analysis did not meet the benchmark of the Center for Fiduciary studies. However, they had semi-annual meetings that did not highlight this fact. Let’s say that correcting that fact would increase your average employees account balance by $100,000. As a fiduciary, you are legally and potentially financially responsible.

401k Fiduciaries’ Duties – A duty of Loyalty and A duty to monitor

You may feel that you have delegated that function to a financial professional or your plan provider. Unless they have signed on the dotted line you have transferred no liability. The law says in either case, that you are not relieved of “the duty to monitor.”

“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.1

Likely someone told you about the “safe harbor” of using a qualified default investment alternative. Most employers did not consider an asset allocation or balanced investment strategy, and selected a target date strategy. If you did not consider choices from several providers, you likely did not do sufficient analysis. If you are not working with a recordkeeping provider that allows you unlimited choice of investment (open architecture), what will you do when your investments don’t score above standard? If the answer is stick with your recordkeeper, you are at high risk.

401(k) Qualified Default Investment Alternatives Safe Harbor?

The DOL recently provided guidance on Qualified Default Investment Alternatives. They stressed the need for you to document your process. “Plan fiduciaries should document the selection and review process, including how they reached decisions about individual investment options.” Clicking the picture below will provide even more information on the QDIA.

5 Things to Know About QDIAs

What does monitor plan assets exactly mean? Is the report you are using today developed by the same people you have outsourced plan administration? If so, do they share in any liability you face (you’ve had that verified by an attorney)? Isn’t it in their interest to provide you analysis that makes their services look good? Remember, Ronald Reagan’s quote “Trust and verify”.

This Plan Fee Comparison provides a sample of an independent investment benchmarking report.

1 U.S. Department of Labor, Employee Benefits Security Administration News Release: [07/18/2012], “US Labor Department action results in order to restore half a million dollars to worker retirement plans sponsored by Columbus, Ohio-based company”

(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI


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