RETIREMENT PLAN INSIGHTS

If you've ever wondered what the IFG-RPAG monthly Retirement Report for plan sponsor clients looks like, you'll find a link to the April issue on the left side-bar.   In addition, we also provide participant pieces which plan sponsor clients can access online through their Fiduciary Briefcase.
 

Well, with all the attention 408(b)(2) is getting (provider disclosures plan sponsors need to receive), little is being said about 404(a)(5) - the disclosures plan sponsors will have to make to their participants.

In the April 16th issue of PlanAdvisor, Fred Reish, chairman of the financial services ERISA team at Drinker Biddle & Reath LLP said what you've read in these posts for some time now. He told PlanAdvisor he is concerned about plan sponsors' lack of urgency in preparing for 404(a)(5).  He also went on to say he believes plan sponsors have a misconception that the burden of participant disclosure falls on the recordkeeper.    In reality, he said, the recordkeeper is simply a service provider operating under a contract and does not act as the fiduciary.  Reish said he thinks many plan sponsors still do not fundamentally understand that they can be liable for participants' investment decisions.

The presumption that many plan sponsors simply don't know what they're doing is highlighted by the fact so many are counting on their providers - the targets of the regulations - to provide the very transparency so many of them are fighting against; and, it still doesn't seem to ring a bell that the resulting conflict of interest could constitute a fiduciary breach. And, as Mr. Reish points out, that's when liability for participants' investment decisions can rear its ugly head... and that liability, according to ERISA experts, is personal.   Imagine a fiduciary having to restore losses to participant accounts from personal assets because s/he was simply negligent, lazy, too busy, or all three.

"It's still the plan sponsor's responsibility," Reish said. "What [plan sponsors] haven't really looked at is that the legal burden is on the ERISA plan administrator."  

What should plan sponsors be doing?

1. Learn their fiduciary responsibility and understand the information record-keepers need to meet the participant disclosure requirements.
    
2. Get an independent review of the disclosure information so it can be evaluated for completeness.
    
3. Establish the timeline in which the disclosures will be distributed and who will be sending them to participants, beneficiaries and other eligibles as required.
    
4. Review initial, annual, and quarterly disclosure statements. The plan website should be reviewed to be sure the designated investment alternatives are accurately represented, as well, to make sure all required 404(a)(5) information is included - particulary where there are custom models, employer stock, and non-publicly traded investments.
    
5. (a good idea) Offer all investment information on a single user-friendly website, even if it isn't required by the DOL.
    
6. Determine that the information is complete and easy to understand. As Mr. Reish points out, "The purpose of the rule is to help participants." They must be understandable and usable.
    
7. (another good idea) Obtain an independent fee disclosure evaluation and certification. This can be particularly helpful if obtained from an industry-recognized independent third-party that is non-conflicted.

Many believe there will be a huge block of prohibited transactions, which can force termination of a provider relationship, uncovered by 408(b)(2) disclosures; but, the fiduciary time-bombs hidden in 404(a)(5) failures can't be overlooked.   And, it all hits the fan this year.