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Fiduciary Liabilities & Company Sponsored Retirement Plans

Introduction: At L4SB, we’re blessed to have many great clients in many industries. Some of our clients serve the business-to-business market, just as L4SB does. When appropriate, we may permit a client to publish a blog article, if we feel the information is relevant and helpful to our website audience and clients. The following article was produced by Sklar Capital, a L4SB client. L4SB asked Sklar Capital to produce a blog article that we could publish, to help our respective business clients better understand the issues with 401(k) management and the US Department of Labor’s increased scrutiny of such employer-based benefit programs. Specifically, many small businesses — as employers — don’t fully appreciate what ‘fiduciary responsibility’ means from a legal liability perspective, especially as it relates to the benefits programs they maintain for their employees.

L4SB has no relationship to Sklar Capital, other than providing legal services. L4SB makes no recommendations or opinions as to the information contained herein.


Most small businesses don’t fully understand or appreciate the implications of fiduciary liabilities as they relate to company sponsored retirement plans, such as 401(k) plans and other company sponsored retirement plans. This is a topic that has received a lot more attention lately. As the Department of Labor (DOL) continues to increase their scrutiny on retirement plans, with no signs of letting up, business owners and plan sponsors have a lot more due diligence to complete in order to meet their fiduciary liabilities.

One of the most concerning aspects of the DOL putting these retirement plans under more scrutiny is the lack of education that has been provided to business owners, plan sponsors and financial advisors. Without proper education, many business owners and plan sponsors don’t fully understand that they do in fact have many fiduciary liabilities to meet in order to be compliant with the DOL and the Employee Retirement Income Security Act (ERISA), nor do they fully understand the fiduciary liabilities. Another aspect of the increased scrutiny by the DOL is that many business owners, plan sponsors and financial advisors have not received the guidance necessary to understand what steps to take in order to meet fiduciary liabilities and to create and maintain an efficient process to protect themselves from DOL audits and fines that could come from them.

To help business owners and plan sponsors better understand, we have outlined a couple of the most prominent issues that the DOL is looking at in today’s increased regulatory environment.

Fees: What Are You Paying, Who Are You Paying & Is It Reasonable?

This is one of the biggest issues that the DOL is looking at. In regard to fees, it is important for a business owner or plan sponsor to think about what they are paying their third party administrator (TPA), what are they paying their financial advisor, what are they paying their platform provider (e.g. Nationwide, John Hancock, Great West, etc.) and, maybe most importantly, what are the participants of the retirement plan paying in fees for the investments that are being offered in the plan?

It is extremely important for business owners and plan sponsors to fully understand what fees are being paid and who they are being paid to as well as what the expenses are on the investments choices that have been chosen for the plan and how they compare to similar choices that could be chosen in their place. For example, without proper analysis and education, a business owner or plan sponsor could find themselves paying a large fine because an investment choice is available for participants to choose from in the plan that costs the participant 1.25% annually when there is a different share class of the exact same investment choice available to the plan that only costs .80% annually. The DOL doesn’t have a hard number on what fees should be for any of the categories listed above, but they want to know that the fees are reasonable and justified which leads us to DOL scrutiny topic number two.

Monitoring Process: Set It & Forget It Will Get You In Trouble!

Having a monitoring process in place is extremely important in the DOL’s eyes. The days of setting up a 401(k) plan, throwing 50 mutual funds into the lineup and letting it continue in the same manner year after year are gone.

The DOL wants to see that the business owner or plan sponsor has a monitoring process that justifies the choices that are made within the plan. Something that is considered a fiduciary best practice is to have an Investment Policy Statement (IPS) for the retirement plan. The IPS is considered the guidelines for how the plan will be managed, how the investments will be monitored, when an investment will be implemented, when an investment will be removed as well as many of the other aspects of the plan. Another fiduciary liability best practice is to thoroughly analyze all service providers of the plan at least every three years. What that means is that a business owner or plan sponsor should get a request for proposal (RFP) from different service providers and compare them to ensure fees are justified for services provided from each of the different service providers.

How To Get Back On Track

With the proper education and knowledge a business owner or plan sponsor can get their 401(k) or other company sponsored retirement plan back on track with little effort depending on who they are working with. Below is a list of recommendations to consider for business owners and plan sponsors to ensure that their plan is in compliance with the DOL and ERISA and to ensure that their plan is as efficient as possible.

  1. Work with a financial advisor that is held to the highest fiduciary standards in their industry
    • Partner with a financial advisor that works at a Registered Investment Advisor firm as an Investment Advisor Representative. This type of financial advisor works on a flat fee basis instead of on a commission basis as a Broker. The DOL likes to see flat fees not commissions, so that that they can verify that there are less conflicts of interest and more transparency.
    • Collaborate with a financial advisor that has credentials showing their fiduciary standard of care such as an advisor that has obtained the Chartered Financial Analyst (CFA) designation and/or is a Certified Financial Planner® (CFP®).
    • Team up with a financial advisor that has credentials that are specifically targeted at company sponsored retirement plans such as an Accredited Investment Fiduciary® (AIF®).
  2. Have your company sponsored retirement plan fully analyzed by a credible financial advisor like the ones listed above
    • An advisor like the ones listed in recommendation 1, will be able to complete a full analysis that will dissect your current company sponsored retirement plan to uncover all fees and who they are being paid to, any unmet fiduciary liabilities that could negatively impact you or your company, and drill down into the investments within the plan to ensure that the money that you and your employees work so hard for is working just as hard for all of you.
  3. Have your company sponsored retirement plan fully analyzed by a credible financial advisor like the ones listed above
    • An advisor like the ones listed in recommendation 1, will be able to complete a full analysis that will dissect your current company sponsored retirement plan to uncover all fees and who they are being paid to, any unmet fiduciary liabilities that could negatively impact you or your company, and drill down into the investments within the plan to ensure that the money that you and your employees work so hard for is working just as hard for all of you.
  4. Work with a credible financial advisor and an attorney to develop an IPS
    • The IPS will make a business owner’s or a plan sponsor’s life much easier in regard to the company sponsored retirement plan once it is in place.
    • The IPS should provide the guidelines for all the different aspects of the plan. Things that would be recommended to include in the IPS are:
      1. The purpose and objective of the plan
      2. The duties and responsibilities of all parties associated with the plan
      3. How often meetings are held with the financial advisor
      4. What criteria is used to implement or remove an investment choice
      5. What investment choice asset class categories are ok to use in the plan
      6. How often the IPS will be reviewed
      7. How often plan service providers will be analyzed and RFPs will be obtained
    • As long as the IPS is reasonable, justifies decisions made within the plan, and is implemented and followed continuously there will be much less to worry about from a fiduciary stand point.

The DOL’s increased scrutiny on company sponsored retirement plans is not something to take lightly, but it also does not have to be something that burdens business owners and plan sponsors. Working with a credible financial advisor will help business owners and plan sponsors ensure fees are reasonable and justifiable, help protect them from fiduciary liabilities, ensure the retirement plan is being monitored on an ongoing basis, and ensure that the plan is as efficient as possible obtaining peace of mind in regard to the plan so that their focus can be on operating the business instead of worrying about all the cumbersome aspects of the company sponsored retirement plan.

This article was produced by Sklar Capital, a L4SB client. They are an independent Registered Investment Advisor (RIA) based in Albuquerque, NM, providing financial planning and wealth management to business leaders and their businesses.

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