As a Plan Sponsor, why should I care about the DOL’s Fiduciary Rule being delayed again? by Mike Bourne.
“After all, we really like our investment advisor and went through a rigorous RFP (Request for Proposal) process prior to selecting her and her firm.”
Most financial advisors are very likable, otherwise, they wouldn’t be successful in a “people” business. It’s great that your company went through a rigorous RFP process, but wouldn’t you like to know that the investment advisor to your plan is legally required to act in the best interest of your plan and put your participants’ interests above their own, while fully disclosing any potential conflict? Many investment advisors and their firms do a good job of maintaining these standards. But, shouldn’t this be the minimum standard for all firms?
ERISA (Employee Retirement Income Security Act) was enacted in 1974 when most company-sponsored retirement plans were defined benefit plans for which the plan sponsor carries the exposure for investment returns and risk. Over the ensuing decades, there has been a tremendous shift to defined contribution plans like 401k and 403b plans and IRAs, which also shifted the burden of investment returns and risk squarely onto the participants – most of who are not sophisticated investors.
The DOL’s Fiduciary Rule attempts to broaden the 40-year-old fiduciary standards for retirement advisors to reflect the change in investment burden to the participants. By requiring most retirement advisors to be plan fiduciaries, the DOL Rule requires that they put their clients’ interests before their own. This means that they must clearly disclose how and how much they get paid (both commissions and fees), as well as any conflicts of interest they have that might affect their advice.
Your company has spent a lot of time and energy, as well as financial resources, setting up and maintaining a plan with the hope of providing your employees a means to fund their retirement. You want to be sure that your plan offers your participants the best opportunity for accumulating funds for a reasonable retirement.
The DOL’s Fiduciary Rule isn’t perfect and some reasonable objections have been made, which is why the Fifth Circuit Court of Appeals vacated the rule in March 2018. After all, this is an attempt to change over four decades of practices, procedures, compensation structures, and approaches in a relatively short timeframe. Hopefully, the industry and regulators can work toward something that moves us beyond the 1970s. Otherwise, the investment your company is making in sponsoring a retirement plan could be frittered away by conflicting advice to your employees.
Mike Bourne is the managing partner for Atéssa Benefits, a TPA firm specializing in defined benefit (DB) plan administration and ERISA Compliance. He is also a partner in MB Actuarial Services, which provides outsourced services to over 700 DB plans for other TPA firms. Both firms are located in San Diego, CA. He is also a CPA and an MBA from the University of Chicago.
