Many HR and finance people that run their organization’s defined contribution (DC) plan like a 401k or 403b are unaware of the significant fiduciary risk under ERISA. At a recent TPSU program held at Stonehill College conducted by Adjunct Lecturer Jim Sampson from HillGroup Retirement Services, the HR professional at a healthcare company running two plans with almost 1000 people was surprised to learn about the extent of the liability which will only increase if the DOL conflict of interest rule becomes effective as well as the growing threat of DC lawsuits.
What struck the plan sponsor at TPSU was the potential costs that her company could incur for breach of fiduciary responsibilities for simple things like not making sure that fees are reasonable. She was also concerned when she learned that she could be personally liable for breaches. As a result, the HR professional plans to go back to her plan documents to make sure that they are following them and check online resources cited at the TPSU program.
After almost 200 TPSU half-day programs conducted since May 2013, there are a few startling revelations:
- More and more plan sponsors are waking up to the realities of running a DC plan going from unconsciously incompetent to consciously incompetent. Though providers and advisors try to make it easy (but not free even if the company does not write a check), not learning or engaging can be costly.
- After attending an education program like TPSU, plan sponsors realize that their Investment Committee needs some training as well. There is no formal training or requirement for DC plan fiduciaries.
- The cost of not engaging in their DC plan is greater than the fiduciary liability.
As long as benefits, especially DC plans, remain tactical and not strategic, companies will pay little attention to improving them not providing proper training for fiduciaries relying on 3rd parties like record keepers, TPAs and advisors to do most if not all of the work without knowing whether these partners are qualified or right for their company.
And though risk management around fiduciary issues will get the attention of most plan sponsors like the HR person at TPSU, the strategic risk is the cost of people not able to retire on time and the lack of productive for people under severe financial stress.
