"Status" Quo?

Last week, during our PLANADVISER National Conference, I asked a panel of four plan sponsors if their current adviser was a fiduciary—and if that status mattered to them.

It’s not the first time I’ve asked that question; in fact, I have asked it of these plan sponsor panels at each of our four such conferences to date (although the plan sponsors were, of course, different). I ask it for one simple reason: While I sense a certain unanimity of opinion on the matter in retirement plan adviser circles, plan sponsors frequently have a more nuanced view.

Sure enough, this year a plan sponsor panelist not only said that his adviser wasn’t a fiduciary, but that he wasn’t at all sure why that mattered. In fact, he wondered aloud why an adviser would want to go to jail with him if something went awry.

Now, you could tell that many of the advisers in the room were surprised, perhaps stunned, by that statement. And yet, IMHO, that plan sponsor demonstrated what I felt was a pretty insightful appreciation for the litigation shield—or lack thereof—afforded him in hiring a fiduciary. For my money, far too many plan sponsors think that when they hire a plan adviser who is a fiduciary (or a provider who touts itself as a “co-fiduciary”), they have, in fact, supplanted their own fiduciary obligations to the program. But here was a plan sponsor who understood that if something “went wrong,” even if his adviser were a fiduciary, he was still on the hook.

That said, this plan sponsor’s answer was the kind of response that should surely give pause to an industry that spends so much time and energy “angsting” over the fiduciary issue.

The truth is, hiring a fiduciary is no magic talisman against litigation for the plan sponsor—and those who think (or who are mislead into thinking) so are ill-advised, to put it kindly. So why should fiduciary status matter?

Consider for a minute, when you bought your last car, who was that salesman looking out for—even as he ostensibly went to lobby his manager on your behalf? What about that clerk that was so helpful as you considered that PC or big-screen TV purchase? How about that commission-based realtor? Did they really have your best interests in mind?

Advisers that have adopted fiduciary status routinely talk about how their fee-for-service approach insulates them from bias in making fund recommendations; note that it allows them to bring THEIR very best judgment to the fore. What is, however, IMHO, too often glossed over is that it’s not just their best judgment, even an unbiased judgment, that is the essential benefit to hiring an ERISA fiduciary. Rather, it’s that judgment applied, and applied solely, in the best interests of the plan and its participants.

And that matters most—or, IMHO, should matter most—to those who are themselves charged with making decisions that adhere to those standards

—Nevin E. Adams, JD

“Miss” Perceptions?

Next week we will launch our eighth annual search for the nation’s best retirement plan advisers.

Each year, we receive a number of inquiries from advisers about the awards, many that fall into a category I tend to think of as “exploratory”—feelers as to what we are looking for.

Well, at its core, what we hope to acknowledge—and, thus, what we are looking for—hasn’t changed at all from when we first launched the award in 2005: advisers who make a difference by enhancing the nation’s retirement security, through their support of plan sponsor and plan participant information, support, and education. And, since its inception, we’ve focused on advisers who do so through quantifiable measures: increased participation, higher deferral rates, better plan and participant asset allocation, and delivering expanded service and/or better expense management.

Now, we’ve always tried to be very transparent about the award, and the process that underlies the selection. That said, I know that some have questions—and perhaps misperceptions—about the award and how it is administered. So, based on conversations I have had with some of you over time, not to mention the general inquiries that emerge around an award that garners this much attention, here are five things you should know about PLANSPONSOR’s Retirement Plan Adviser of the Year award:

(1) It’s NOT a personality contest. Sure, advisers who are nominated by 30 of their closest friends and wholesalers stand out (though only after you’ve passed the quantitative round). But even then you get no extra points for having support in the “community.”

(2) You will have to provide actual data about the impact your firm is making on things that really matter. We look at participation rates, deferral increases, participant asset allocations, and even fee negotiations. And we will talk to your plan sponsor clients (and expect them to confirm your data). If you don’t have, or aren’t monitoring, those kinds of data, you probably aren’t ready for this award.

(3) Award semi-finalists and finalists are chosen based on a blind review of qualification data. Our process selects semi-finalists and finalists based solely on data and screened reference checks. Only after the finalists have been selected are their names known to the judges.

(4) Our judges sign nondisclosure agreements. Yes, we have judges for this award—judges who not only know the space, but know how to evaluate the data. Two of the five judges for each award are advisers; prior winners of the award, in fact. We have always thought their perspective was important as a “real world” check on the award criteria. That said, we understand that some advisers might be reluctant about sharing data about their practice1 with potential competitors—and our judges agree, in writing, to respect the confidentiality of that information.

(5) Those who don’t participate don’t win. It may be an honor “just to be nominated,” but those who don’t respond completely and accurately to the aforementioned requests for information don’t make it past the nomination round.

May the best adviser(s) win—and, based on our prior winners,they generally do.

—Nevin E. Adams, JD

Editor’s Note: Those who have additional questions should feel free to e-mail me at nevin.adams@assetinternational.com, or Alison Cooke-Mintzer at acooke@assetinternational.com

More background information on the award is available HERE
Additional information is available here


1 We’re not talking about client lists here; average rates of deferral and savings across your client base, your average client size, that kind of thing.

“To Do” List—Part 2

Being a plan fiduciary is a tough job—and one that, it’s probably fair to say—is underappreciated, if not undercompensated. In my experience, most who find themselves in that role (see “IMHO: Duty Call”) do an admirable job of living up to the spirit, if not the letter, of their responsibilities.

Nonetheless, there are plenty of areas in which we could do a better job. In this week’s column, we’ll touch on the rest of my “10 things you’re probably doing wrong” list:


6. Thinking your plan qualifies for 404(c) protection—and misunderstanding what that means.

Any number of studies suggest that many, perhaps most, plan sponsors think their plan meets the standards of ERISA 404(c ), a provision that ostensibly shields them from being sued for participant investment decisions, so long as certain conditions are met.

On the other hand, industry experts are nearly uniform in their assessment that very few, perhaps no, plans meet those standards (though the courts have been somewhat more liberal in their application). So, even if you think your plan does comply—check. And even if your plan does comply, understand that, while 404(c)’s shield may offer some protection against an individual participant suit, it offers no insulation against a participant suit predicated on an inappropriate investment option. Remember, too, that the DoL thinks you’re responsible for every participant investment decision except those behind 404(c)’s “shield.”

7. Depositing contributions on a timely basis.

The legal requirement for when contributions must be deposited to the plan is perhaps one of most widely misunderstood elements of plan administration. Unfortunately, a delay in contribution deposits is also one of the most common flags that an employer is in financial trouble—and that the Labor Department is likely to investigate.

Note that the law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. Many have read the worst case situation (the 15th business day of the month following) to be the legal requirement. It is not.

8. (Not) monitoring providers on a regular basis.

In some sense, we all “monitor” the performance of plan providers all the time. Is the Web site available when people try to access it? Do checks and statements arrive on time? Are the balances displayed accurate? The reality is that, for most of us, no news is seen as “good” news. After all, if the answer to any of those questions was “no,” we’d not only know about it, we’d be complaining about it (after fending off our own set of complaining phone calls). Odds are that you have a very full-time job dealing with the things that are “broken”—why go looking for trouble?

However, relationships with providers are like any other relationship—we all slip into “ruts” of complacency—and the best way to keep that new customer “honeymoon” feeling alive is to do something as simple as ask your current provider for a regular service review. At least once a year—no matter how well things are going—you should determine if your plan has access to the new services that have come online since you converted; that you are getting the advantages of the most current thinking about costs and fees; and how your plan’s participation, deferral, and asset diversification stack up. And every three to five years (sooner if there are problems, of course), you should go through a formal request for information (RFI) or request for proposal (RFP) process—on your own, or with the help of an adviser (who doubtless has more experience with such things).

Remember also that the DoL says that, “Among other duties, fiduciaries have a responsibility to ensure that the services provided to their plan are necessary and that the cost of those services is reasonable.”

9. Not following the terms of the plan document.

Plan documents are, after all, legal documents and can skirt the fringes of readability. Retirement plans develop certain patterns or routines—the way things are handled—that may not, over time, remain consistent with the terms of the plan. Particularly if you are using a plan document prepared by a provider (or, worse, an ex-provider) that may well accommodate that provider’s approach, but may not match (or may not have kept up with) how you actually administer the plan. It is a good idea to do a document/process “audit” every couple of years; don’t assume that “the way we’ve always done things” is supported by the legal document governing your plan.

10. Not realizing who is a fiduciary—and what that means.

The first thing to understand is who a plan fiduciary is, and to understand that the “test” isn’t what you call yourself (or, in some cases, what you avoid calling yourself), but your ability to control and influence plan assets. A fiduciary is any person or entity named in the plan document (e.g., the plan sponsor and trustee); any person or entity that has discretionary authority over the management of a retirement plan or its assets (all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee—if it has such a committee—and those who select committee officials); and any person or entity that offers investment advice with respect to plan assets, for a fee.

Remember too, that the authority to appoint a fiduciary makes you a fiduciary—and that hiring a “co-fiduciary” does not make you an “ex” fiduciary.

If you are a fiduciary, and you feel that you lack the expertise to make those decisions, you will of course want—and, in fact, are expected—to hire someone with that professional knowledge to carry out the investment and other functions.

Finally, remember that, IMHO, you’re more likely to get sued for not doing something you should be doing than for doing something you shouldn’t be doing.


—Nevin E. Adams, JD

You can find more information on fulfilling your fiduciary responsibilities at the Employee Benefits Security Administration’s (EBSA) Web site HERE