Retirement plan sponsors often grapple with the decision to hire an outside fiduciary. With regulatory scrutiny increasing in intensity and fee lawsuits continuing to proliferate, that decision is more critical than ever.
In a recent FiduciaryNews article, Chris Carosa, CTFA weighed the benefits of hiring professional fiduciaries for 401(k) plans and aimed to address whether plan sponsors truly believe in them. Specifically, Mr. Carosa outlined the following reasons for sponsors to consider an outsourced fiduciary arrangement:
- Expertise and standards: ERISA holds fiduciaries to a “prudent expert” standard. That expertise isn’t always available in-house, making it necessary for sponsors to engage a professional fiduciary.
- Risk management: Professional fiduciaries can help plan sponsors navigate complex regulations and other compliance concerns while potentially reducing their liability.
- Conflict of interest avoidance: Independent fiduciaries can help avoid conflicts that may arise when corporate officers serve on investment committees.
- Outsourcing responsibility: While plan sponsors retain some oversight duties and ultimate fiduciary accountability, professional fiduciaries can take on significant responsibilities, especially when it comes to investment selection, monitoring, and management (e.g., 3(38) fiduciaries).
- Specialization: Mr. Carosa compared hiring a professional fiduciary to hiring specialized professionals in other fields, such as CPAs or surgeons.
- Focus on participant interests: Professional fiduciaries are duty-bound to serve the best interests of both the plan sponsor and participants, potentially leading to better plan management and improved retirement outcomes.
- Improved plan quality: The alignment of provider and plan interests through fiduciary responsibility can lead to better overall plan quality and the implementation of industry best practices.
Mr. Carosa appeared to suggest that while these benefits exist, some plan sponsors may not fully appreciate or believe in them. He encouraged sponsors to critically evaluate their needs and understand the value that professional fiduciaries can bring to their 401(k) plans. Mr. Carosa also implied that there’s still work to be done in convincing plan sponsors across the board of the benefits of hiring professional fiduciaries, despite the obvious advantages.