What’s being said to your employees by your record keeper’s call center could lead to increased fiduciary liability according to one of the industry’s leading attorneys, especially when it comes to distributions. Plan sponsors have a duty to monitor what is being said to their plan participants especially as more record keepers look to mine plan participants for IRA rollovers and sales of annuities and could be liable if the information is misleading or biased.
Regulators has stated that communications to employees by record keepers call centers should be clear, comprehensive and unbiased but that’s not always the case as revealed by a 2013 GAO (Government Accounting Office) investigation. Some IRA service providers gave sales oriented and misleading information, especially regarding fees, which could lead to liability for the employers if they selected the firm to provide record keeping services.
The SEC has been focused on this issue as well when examining advisors their ReTIRE (Retirement Targeted Reviews and Examinations Initiatives) program, through examinations https://www.benefitspro.com/2015/12/30/sec-exams-pinpoint-advisors-retirement-business of retirement advisors with onsite visits starting the end of November 2015. Specifically, the SEC examiners are focused on marketing materials and sales scripts related to 401(k) distribution options.
Clearly, IRAs are becoming the focus of regulators and lawmakers as more money moves in the direction of a market not nearly as regulated as ERISA plans and because of the inherent conflicts that can arise if an advisor or provider recommends their own services for managing IRAs without proper disclosure.
So what can plan sponsors do?
- Ask their record keeper if they are providing distribution guidance and, if so, do they offer a proprietary service.
- Review the scripts used.
- Look at the data of how many participants use the record keepers distribution service.
- Call the record keeper acting as a participant and see what they saw – as the GAO investigators did – you might be surprised.
- Prohibit record keepers from cross selling proprietary products or those that generate a referral fee.
