Fiduciary survey reveals opportunities for plan sponsors and advisers

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This past summer, my wife and I moved into a new community. As in most communities, there is a robust recycling program. The only problem is figuring out the rules.

Specifics aren’t written anywhere, but I’ve learned through trial and error that you need to keep paper separate from plastic and glass. And if it’s too big, it gets picked up on a separate day for bulk. But they won’t pick up recycling on bulk day because that could have been put out on the regular pick up day.

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Very complex, yet we know it’s important to recycle. This reminds me a bit of plan governance and fiduciary oversight.

PSCA survey results
According to the recent Plan Sponsor Council of America (PSCA) 403(b) Snapshot Survey, a significant number of plan sponsors are unaware of the Department of Labor’s fiduciary regulatory package. This includes more than half of small plans with fewer than 50 participants. The survey also reports:

  • up to 25% of plan sponsors don’t know whether they are fiduciaries
  • 40% believe that their plan service provider(s) are fiduciaries
  • 50% don’t believe that their advisers are fiduciaries

While there are many different types of arrangements, these numbers show that there is uncertainty in the air.
With or without the DOL fiduciary regulation, we’ve found that many plan sponsors don’t completely understand what it means to be a fiduciary under ERISA, and who in fact bears that responsibility.

The issue has been oversimplified into quick sound bites about acting in the client’s “best interest.” The reality is that sound bite fails to get to the real issues. The facts of the matter are twofold:

1) It isn’t so simple. ERISA is highly complex, and there are rules that actually prevent fiduciaries from certain activities regarding the plan. If an adviser or service provider is hired to perform such a service, their fiduciary status may prevent or make it hard for them to perform that service (assuming they are to be paid for performing it).

2) The vast majority of advisers and service providers already act in their clients’ best interest. That’s good business. It makes for satisfied clients. And satisfied clients generally remain clients.

Opportunities for plan sponsors
The DOL fiduciary regulatory package presents an opportunity for plan sponsors to evaluate their overall governance structure. They should make sure they understand what their fiduciary duties are and whose role it is to fulfill those fiduciary duties. That’s a best practice even if there were not impending DOL regulation, and that includes ERISA and non-ERISA plans.

They will also need to evaluate various plan services and determine whether or not services are fiduciary in nature. One example of this is participant education. While it’s possible to have an adviser providing fiduciary-level advice to plan participants, the plan sponsor will need to evaluate the need for such advice relative to investment education. They are two different services and the plan sponsor will have to determine what’s best.

The good news is advisers can help plan sponsors sort through it, implement an appropriate governance structure and process, and make sure appropriate fiduciary roles are identified and assigned. This will likely prevent problems in the long run, ensuring the ongoing health of the plan — so it doesn’t get thrown in the recycling bin.

PSCA is not an affiliate of any company of Principal Financial Group.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1 (800) 547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group (Principal), Des Moines, Iowa, 50392.

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