Over the last several years, there has been a growing level of awareness surrounding the various roles that retirement plan advisors and consultants play when serving their clients. The increased awareness can be attributed to the establishment of organizations dedicated to promoting fiduciary best practices, as well as the increased exposure to content available at a growing number of industry conferences. Not surprisingly, this has led to the creation of new business models, new credentials and new expertise.
The sections of the ERISA dealing with fiduciary responsibility, in name, have evolved into marketing terminology. For example, ERISA §3(38) Investment Manager is now a bell or whistle made available by the advisor or the service provider. An unfortunate side effect of this trend is the wide disparity in the quality of the delivery system. Some claim to be ERISA fiduciary “experts” using ERISA fiduciary as a sales feature, when really their expertise is in sales or asset gathering. Even among genuine experts, there are many who lack the depth in understanding the many nuances that distinguish the roles. In a recent competitive situation we observed an advisor team, acting as an ERISA §3(38) Investment Manager, state to a client that they are equivalent to a fully Discretionary Trustee, but that they could do it for less. This claim, in the form of salesmanship, was plainly inaccurate and disappointing, yet it happens all too frequently.
While we find that the uptick in the use and discussion of the various fiduciary roles exciting on some levels, the misuse that occurs with client consulting can be problematic. In the example above, by that advisor claiming that selecting funds for their client is the same as a being a fully discretionary trustee, it substantially diminishes the robust list of services provided by a discretionary trustee that goes well beyond fund selection. Many of those services are equally, if not more, important to the Plan Sponsor and the participants. For that reason, we have created a comprehensive chart that explains the PRACTICAL differences for the various fiduciary services available in the market. Click here
I’ve heard that some consultants say that annual reviews should be conducted annually for plans with less than $1MM in assets and semi-annually for plans exceeding $3MM in assets. Is there a fiduciary issue with spacing reviews that far apart?
ReplyDeleteI do not believe there are fiduciary issues spacing reviews that far apart. Monitoring of the plan is not outlined specifically anywhere in the ERISA, except that it states there is a clear duty to monitor. So, the question of risk applies to the method of monitoring. The real concern is the nature of the monitoring process what does it review and why, and, is the monitoring process formal and consistently applied.
ReplyDeleteFor example, I believe there would be greater risk to adopt a policy of quarterly monitoring only to then fail in its execution.
It is important for fiduciaries to maintain detailed client records, but is there any reason you know of why an investment manager would need to keep plan documents and amendments on file for their client’s plans accounts?
ReplyDeleteNeed is a strong word. I don’t think that an Investment Manager needs to keep plan documents on file necessarily. Corporate trustees do, but that is a result of the formal role they play and their additional duties beyond investment management. I do think that all plan fiduciaries should be aware of what is going on in the plan and have knowledge of the plan’s design. It is important to have assurance that the plan is in operational compliance, and possessing copies of documents is a good way to accomplish those things to a degree.
ReplyDeleteRegarding QDRO’s, I’ve heard that there should be a written policy outlining the QDRO process, and the investment ramifications during the process. I don’t believe I’ve ever seen such a document, and I am unclear on the discretion the plan sponsor has with regards to the investments during the process. Can you elaborate further on either of these issues?
ReplyDeleteThere is generally a written QDRO policy that is an administrative policy of the plan, as opposed to a part of the plan document (though it is a “governing document” that fiduciaries must follow). Similar to a loan policy: handling of loans is generally specified in a separate policy document that is nonetheless as binding as the PD.
ReplyDeleteWith regard to the investments throughout the process, yes, their management is a fiduciary issue. The key is whether a QDRO alternate beneficiary has the “opportunity to exercise control” and has, in fact, exercised control over a QDRO since 404(c) protection depends on that. But this is an appropriate use of a QDIA if there is no exercise of control.
Should an attorney review each QDRO prior to approval? Is that absolutely necessary?
ReplyDeleteSomeone needs to, and generally it needs to be an attorney or a department that specializes in this. My experience is that there is an attorney involved somewhere. QDROs are infrequent and must be handled properly, and are a natural source for litigation. It pays to be sure.
ReplyDelete