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Fiduciary Responsibilities : A Simple Primer for 401k Plan Sponsors

Fiduciary Responsibilities: A Simple Primer for 401k Plan Sponsors. What are the basic fiduciary responsibilities of a 401k and 403b plan sponsor? How can plan sponsors best fulfill them? And what should be avoided at all cost? Watch Fred Barstein’s weekly Vlog to learn more.

[Transcript] Hi, this is Fred Barstein, Editor in Chief of 401ktv and CEO of TPSU and TRAU.
This is my weekly Vlog and today I want to talk about a brief primer for 401k and 403b plan sponsors on how to fulfill their fiduciary responsibilities.

First thing, let’s talk about what to avoid. If someone comes to you and says, “your plan is free or my services are free,” you should definitely avoid them. If they also say that “we can take all of that fiduciary liability away from you,” you should avoid that as well. There are ways to mitigate it but you can never get rid of the liability entirely.

A lot of plan sponsors that have been sued thought they weren’t paying very much or at all. They didn’t understand their fees. Just to be clear, if you want to write a check, that’s fine, but if it’s being paid out of plan assets, that’s when the liability comes.

Secondly, what are the basics of an ERISA plan sponsor on their fiduciary responsibilities?

Number one is the plan must be designed in the sole benefit or interest of the participant. So, for example, you can get a better credit rating with your bank if you promise to give the record keeping for your plan to them.

Secondly, the fees have to be reasonable and that’s a two-part test.

Number one, what are the fees? There are a lot of indirect fees and it’s not obvious, a lot of times, how much you are actually paying, or your participants are paying. It can be in your 408b2 disclosure but that can be very difficult to read. Then you have to determine if they are reasonable, which comes either through benchmarking which you should probably do once a year, or better, go to market and do an RFP (Request For Proposal) which is every three to five years.

Finally, how do you fulfill your fiduciary responsibilities is you must have a prudent documented process. If the process is not documented according to the Department of Labor, it didn’t happen. And then in terms of prudent, you are expected to be an expert. Now, a lot of you are not, probably most of you are not, but you can hire experts to help you fulfill that responsibility.

This is where the shift comes. Your role, if you hire an expert, is to make sure that that expert is qualified and they are actually doing what they said they were doing or what the plan is paying them to do.

So, that’s how you do it. Hopefully, that is helpful and simple.
We look forward to seeing you at a TPSU program and keep watching 401ktv.


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