401k and 403b Fiduciaries Under New DOL Rule – Beware The Untrained. In the inaugural column of 401kTV’s “Ask the Lawyer”, attorney Carol Buckman provides sage advice for plans sponsors asking what they need to do now and be wary of in the future as a result of the DOL fiduciary rule. A major consulting firm provides further insights including a possible major policy change by the DOL concerning the BIC (Best Interest Contract) exemption.
But lost in all these discussions is the glaring fact that maybe 10% of advisors currently serving or getting paid on 401k or 403b plans are actually equipped and trained to act as fiduciary creating a conundrum for plan sponsors using an advisor that is not.
Willis Towers Watson provides the following recommendations to ERISA plan sponsors regarding the DOL fiduciary rule:
- Because the major change is the relationship with providers of advice that could include record keepers and advisors, it’s likely that their service agreements will be changed. If so, pay close attention and, if services are cut, ask for a fee reduction.
- Evaluate the capabilities of the provider now acting as a fiduciary and determine if there are any conflicts of interest.
- Monitor the vendors now providing advice including call center communications and scripts.
Willis notes that the DOL signaled in a brief that it will no longer support the portion of the BIC exemption that prevents providers from limiting class action lawsuits which is a major shift.
There are 250,000 advisors currently working on a 401k or 403b plan but only 25,000 have the requisite experience, knowledge and training to properly serve plan sponsors and their employees according to research by The Retirement Advisor University (TRAU). Many of the unequipped advisors will either get the necessary training and experience, some required by their broker dealer or RIA, while others will refer cases to more experienced advisors or use an outsourced fiduciary service.
But the majority of these ill equipped advisors will continue to work on 401k or 403b plans with lax oversight by many broker dealers and RIAs not familiar with ERISA putting plan sponsors in a difficult situation.
If these advisors are acting as a fiduciary under the new DOL rule with minimal experience or training, the plan sponsors may be at risk. Just calling these advisors fiduciaries does not mean that, overnight, they know how to act as one. Nor does taking a test or a one day course provide much help.
And record keepers that offer proprietary investments while at the same time providing advice as a fiduciary may also put plan sponsors in jeopardy.
