Fiduciary Traps for 401k and 403b Plan Sponsors. A noted large market consulting firm developed a list of 8 fiduciary traps and tips for 401k and 403b plan sponsors which apply equally to smaller plans. Though fiduciary liability under ERISA is the highest standard known to law in the world, the steps to comply can be simple, painless and do not have to cost much.
The fiduciary traps and tips include:
- Too much control with the plan’s record keeper – Issues include proprietary funds, especially the target date, as well as the stable value fund, which must be evaluated separately and potentially improper interaction with participants about advice and rollovers.
- Haphazard fee review – Fees should be benchmarked annually but only an RFP will show the real market price that plan sponsors can enjoy. Prices are constantly changing especially for plans that are growing quickly. And, of course, understanding the spider web of revenue sharing is challenging.
- Stale IPS (Investment Policy Statement) – The only thing worse than not having an IPS is to not follow it. Though not required, DOL auditors often ask to see it. There should be a separate section about the plan’s default option (QDIA) if not a separate IPS.
- Uneducated Investment Committee – Just the name implies investment expertise that most committee members lack. Not only do they need training they need updates on new laws, regs and best practices.
- Too many funds – Too many choices stymie’s participants not sure which investments to select and they also diminish a plan’s buying power, the subject of some recent lawsuits.
- Managed Accounts – Not all providers are the created equally. Plan sponsors should evaluate the fees, advice and revenue sharing arrangements. More record keepers are pushing their own option which needs to be evaluated separately.
- Cybersecurity – Don’t think it’s an issue for 401k or 403b plan sponsors? Think again. (See 401kTV Video.)
- Sloppy documentation – According to the DOL, if it’s not in writing, it didn’t happen.
Solid fiduciary tips and a good start to a fiduciary audit checklist.
