Nathan Paris, an institutional retirement consultant with Unified Trust’s Retirement Plan Consulting Group in Lexington, recently attended the Kentucky Society for Human Resource Management annual conference for HR professionals in Louisville, Ky. During the three-day conference, Mr. Paris engaged in several conversations with plan sponsors, many centering on recent changes and challenges in the industry. He provided Business Lexington with an account of the issues they raised and his thoughts and responses.
Plan sponsors — the HR folks with whom I work to design and maintain company retirement plans — share many of the same unanswered questions. This exposes a failure by my peers in the retirement plan services industry to explain clearly what recent changes in plan governance mean to participants and how they affect the sponsor’s role. This was made evident by my recent discussions with HR professionals at the annual conference of the Kentucky Society for Human Resource Management.
This year, we prepared for the implementation of new retirement plan fee disclosure regulations created by the Department of Labor. Until this summer, most plan participants had been left to wonder how, if at all, they would be paying for plan costs. The new guidelines addressed this absence of information by requiring sponsors to disclose plan fees to participants beginning August 30 under Regulation 404(a)(5).
My firm has been disclosing all fees to participants whose plans we administer going back many years, so it was an eye opener to hear how the repercussions of these new disclosures left such a lasting impression on many sponsors. Many found themselves in uncharted territory in early September as they attempted to explain the fee breakdown now that their participants have access to this information.
Their questions for me centered on how we handle fee disclosures with our participant base. The simple answer I provided is to know what each cost represents and how it provides value to the participant, and to be well versed in discussing them. If you are not prepared to explain these points, then you should work with your plan provider to construct satisfactory answers.
The second major outstanding issue among plan sponsors I met is less forgivable than the fallout from a recent rule change. There is a lot more understanding of fiduciary liability today than I recall from SHRM Conferences in recent years, but a great deal of misunderstanding persists over whether the plan sponsor or consultant ultimately has responsibility to participants under different scenarios. It is fair to attribute the confusion to self-serving messages from various corners of the retirement plan services industry.
This uncertainty has the potential to be volatile and costly for sponsors. I got the impression from several of my conversations that they are asking plan providers questions, but they may not be the right questions. There are two related questions to ask that should tell sponsors everything they need to know about the degree of responsibility they and their plan consultant have to participants.
The first question is: Are you a fiduciary on my plan?
There are three likely answers: 1) yes, the plan provider is; 2) no, the plan provider isn’t; or 3) the plan provider offers a fiduciary warranty. The ambiguity here is with fiduciary warranty, which is more of a prospecting tool for plan providers than true legal protection for sponsors. It is still, however, considered by many to be the same as having a provider that functions as a plan fiduciary.
The second question is: How much of the liability falls on me as a plan sponsor?
A real fiduciary stands in front of the sponsor and effectively shields the sponsor from liability. As a fiduciary, we take on the responsibility of a discretionary trustee and actually sign the plan document.
That’s not to suggest a sponsor is no longer a fiduciary in this case, but they are left only with the duty to monitor the plan provider to ensure they are making prudent decisions. A competent provider functioning as a fiduciary should coordinate transparently with the sponsor to assist in fulfillment of that final obligation.
The greatest degree of protection a plan sponsor can expect from a fiduciary warranty is the possibility that it will compel the provider to stand behind them, but definitely not in front of them. In most cases, however, the warranty will not bring the provider into the fray and therefore leaves the sponsor still holding all the responsibility.
One final issue came up a few times during my conversations at the conference. I spoke with plan sponsors who expressed concerns over several larger players in the retirement plan services industry who are selling off all or part of their operations. Their concerns revolved around how exposure to these restructured and offloaded business units will ultimately trickle down to the sponsor and participant level.
My only advice would be to consider the benefits of partnering with providers for which plan design and implementation is a core competency. Then think about the unanswered questions created by providers that function foremost as interchangeable pieces of large financial conglomerates.
Nathan Paris is an institutional retirement consultant with Unified Trust’s Retirement Plan Consulting Group in Lexington.