Fiduciary Training for Plan Sponsors
In recent months, we have conducted fiduciary training sessions for several 401(k) committees.
In most cases, the responses of the committee members were what we expected. For example, they were generally aware of the issues concerning expenses and revenue sharing, but wanted to know more about how to evaluate those items. As a result, we had good discussions about benchmarking and the services that are available today.
However, we were surprised—at least a little surprised—by the lack of awareness of two major issues.
The first was the need to prudently select and monitor the plan’s target date funds, even if that was the only target date lineup offered by the recordkeeper. On top of that, the committees, by and large, felt illequipped to handle that job.
While their advisers had done a commendable job of helping monitor the target date funds, the investment policy statements did not have good guidelines for that process, which suggested that the advisers and committee members had not devoted enough time to thoroughly discuss the issues involved in monitoring target date funds.
The second topic was the importance of thoroughly reviewing the service agreements with plan providers and advisers. For these plans, the relationships between the plan sponsors and the advisers and providers were working out well and there were no problems. Nonetheless, when viewed from the plan sponsor’s perspective, the service agreements contained provisions that attempted to significantly relieve both the providers and the advisers from liability for their mistakes. From our perspective in representing plan sponsors, a fair agreement requires that each person be responsible for the problems that they caused. However, many agreements try to go beyond that by disclaiming liability . . . even where the service provider fails to properly perform their job.
Both of these are significant issues, and we recommend that plan sponsors do a better job of updating their investment policy statements to have meaningful provisions on the selection and monitoring of target date funds and that they thoroughly review the agreements of their service providers with their attorneys.
Any U.S. federal income tax advice contained in this communication (including any attachments) is neither intended nor written to be used, and cannot be used, to avoid penalties under the Internal Revenue Code or to promote, market or recommend to anyone a transaction or matter addressed herein.
© 2009
Reish & Reicher, A Professional Corporation. All rights reserved. The REPORT TO PLAN SPONSORS is published as a general informational source. Articles are general in nature and
are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish & Reicher does not warrant and is not
responsible for errors or omissions in the content of this report.
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