Monitoring Your Retirement Plan is No Longer Optional

Lawsuits and the Department of Labor’s new fiduciary rule have led to new responsibilities for retirement plan sponsors.

It used to be that employers sponsoring a retirement plan like a 401(k) had the option of handing things off to a plan provider, and that was that. But litigation and the U.S. Department of Labor’s new fiduciary rules have put an end to those days.

As a result, retirement plan monitoring has become a high-stakes necessity for employers.

“Plan sponsors are now exposed to liability they may not be aware of,” says James Purdie, senior vice president and trust officer at Regions Bank. “It’s not something you can ignore.”

Since the financial crisis that started in 2008, a spate of lawsuits against plan sponsors charged them with having plans with high fees, poor performance, or an unethical relationship with the investment company they hired. In July, American Airlines settled one such suit for $22 million. Principal Life and New York Life each settled claims for $3 million, while TIAA (Teachers Insurance and Annuity Association of America) settled a similar class-action suit for $5 million.

The Department of Labor’s new fiduciary rule also puts retirement plan sponsorship under the microscope. The rule aims to better align the financial interests of investors, advisors and sponsors to protect the individual investors. It will put more responsibility on plan sponsors to ensure that they are meeting their fiduciary obligations. As the rule progresses through its staggered implementation phases, these duties will be more rigorous for plan sponsors and investment advisors.

Huge Amounts, Huge Responsibilities

Of the $26 trillion Americans have set aside for retirement, 401(k) plans hold approximately $5 trillion in assets, belonging to 55 million workers and retirees. To eliminate conflicts of interest, the DOL fiduciary rule calls for greater transparency from broker-dealers, for example, and representatives from mutual-fund firms, who benefit by advocating particular investment vehicles. The initial phase of the rule affecting fiduciaries went into effect on June 9, 2017.

Employers and the employees involved with decision-making for the plans are now considered retirement-plan fiduciaries. And the new regulation’s requirement that fiduciaries act in the “best interests” of their clients means they need to understand the specifics of the plans, including fee structures, any related commissions, and their full responsibilities under the rule.

“I Want a Lineup” Won’t Cut It Anymore

In short, paying close attention to your employees’ retirement plans is no longer optional — it’s the law. “No longer can you just call up a mutual-fund company and say I want a lineup’ — you have to do your own due diligence about the best funds in the market based on some criteria, and you have to repeat that due diligence on a regular basis and document it,” Purdie says.

On the positive side, fiduciaries will better understand the fees in retirement plans, including fees for maintenance, management, advisory, marketing and redemption.

Educate Your Educators

An additional implication of the DOL fiduciary rule is that retirement-plan sponsors must carefully review their investment-education materials to ensure that the content never strays into the territory of advice. If it does, the content would be subject to fiduciary-level scrutiny and vulnerable to lawsuits if the advice is deemed to be either unsound or not in the best interests of the employee. Plan fiduciaries should also review plan asset-rollover forms. And all personnel who interact with plan participants should be trained to make certain that what they tell employees can’t be interpreted as investment advice.

The fiduciary rule promises better service and transparency to retirement-plan participants. The process of monitoring and evaluating fund performance, determining fees, and removing advice from plan materials creates extra work for retirement plan sponsors. But it’s work that will ultimately be worthwhile, according to Purdie.

“This rule is going to be good for the business and good for the people who always have acted as true fiduciaries,” he says.


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This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.