Exclusively from Foa & Son
While often overlooked or forgotten, it’s worth remembering that under the Employee Retirement Income Security Act (ERISA) trustees of retirement plans face a potential for personal liability arising from acts or omissions in their role as fiduciaries for those plans.
ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan’s management or assets; such individuals are required to act solely in the interests of plan participants. Fiduciaries who do not follow these principles of conduct may be held personally liable and responsible for restoring any losses to the plan. ERISA also gives participants the right to sue fiduciaries for benefits and breaches of fiduciary duty.
Many of our readers fall into this category as fiduciaries for their organization’s retirement or benefits plan, so the question is, why is this important to you? As it happens, 401(k) fees have been in the spotlight recently. New federal fee-disclosure rules went into effect last year; 401(k) administrators are required to better identify the fees being charged to plan sponsors and participants. High fees, of course, can mean lower returns to participants, which can lead to lawsuits and allegations of breach of fiduciary duty.
A Yale professor was recently reported to be doing a study of 401(k) fees that involved a mass mailing to thousands of employers across the country who sponsor 401(k) plans, seeking information on plan fees. His theory is apparently that a percentage of them might have unusually high fees built in. He reportedly plans to publicize the findings from his research.
The Government Accountability Office did a study in April 2012; the average amount sponsors of small plans reported paying for record-keeping and administrative services was 1.33% of assets annually, compared with 0.15% for large plans. Fees don’t tell the whole story, of course. A myopic focus on fees only (which can range widely) ignores services such as participant education, advice and automatic enrollment of workers, all of which typically come at a cost but also can improve retirement investors’ returns. It’s also important to weigh investment performance against the fees charged. Looking only at fees without considering services or performance criteria can give a distorted picture.
Nevertheless, there has already been an uptick in litigation tied to 401(k) fees, so prudent fiduciaries will find it worthwhile to take a look at this. In addition to reviewing fees and costs associated with your retirement plans you should also be reviewing your Fiduciary Liability insurance, which covers you for any personal liability you might incur as a plan fiduciary. Give us a call and we’ll go over that with you.