Cedar Brook - Crain's Cleveland Business Article

Retirement Plan Sponsors: Lessons from The Three Amigos

In the movie The Three Amigos, Lucky Day (Steve Martin), Dusty Bottoms (Chevy Chase), and Ned Nederlander (Martin Short) are Hollywood silent film actors who portray the heroic Amigos on screen. Believing they are real heroes, Carmen asks them to protect her village from El Guapo. The Three Amigos honor Carmen’s request thinking their appearance alone will be enough to save the day. They soon realize they cannot just go through the motions to protect those counting on them.

Just like The Three Amigos, retirement plan sponsors cannot just go through the motions. ERISA requires plan fiduciaries to act prudently and solely in the best interest of the plan’s participants and beneficiaries when selecting and monitoring service providers and plan investments.

Have you ever stopped to think about what this means?

Act prudently. You should document that you operate and make decisions which affect the plan based on some objective process. Be sure to follow the rules described in the plan document. You are not expected to be a fortune-teller; you are expected to have some rationale supporting your decisions. If you are not an expert on retirement plans and/or investment options, you are expected to hire people who are, or obtain the necessary training.

Act solely in the best interest of the plan’s participants and beneficiaries. Remember this when you select service providers and investment options. Don’t make decisions which impact the plan simply because you or the company receive some favorable treatment (i.e. bank financing).

Did you notice the words “selecting and monitoring?” ERISA requires you to revisit your decisions periodically and make changes when appropriate. This evaluation should include a review of the investment options and the service providers (i.e. financial advisor, actuary, third party administrator, recordkeeper, auditor). Don’t retain them simply because they are your golfing buddy, relative, or manage your personal investments. Make sure your service providers, and the plan’s investment options, continue to do the job you hired them to do.

These duties have moved under the spotlight now that the retirement plan fee disclosure rules of 408(b)(2) became effective. Final regulations issued by the Department of Labor (DOL) required covered service providers to provide fiduciaries with information about:

  • their compensation,
  • the services they provide, and
  • their fiduciary status.

Why? Because these covered service providers are only permitted to be paid from the plan assets if both the contract/arrangement and the compensation for services are reasonable.

El Guapo has arrived, plan sponsors, and you can no longer go through the motions. You need to review the services you are receiving and their respective costs. Your service providers should have given you fee disclosure documents by July 1, 2012. Remember those thick documents you received in the middle of the summer? (If you didn’t receive any, you are required to send a written request.) Once you have them, you cannot just put them in your drawer. Now is a good time to do some comparison shopping. This can be done by reviewing survey data or by gathering specific proposals for your plan. You are not required to select the lowest cost alternative, but should make sure you are getting what you (and your participants) are paying for.

You think you don’t need to worry about this because you hired “Bob” to do this for you? Small business owners who offer plans to their employees are personally liable if it is determined that they failed to satisfy the fiduciary obligations of ERISA, even if they are not actively involved in the day-to-day management of the plan. Sit down with “Bob” and make sure the review has been done.

The DOL is encouraging plan sponsors to take the necessary compliance steps and has increased examination activity. In FY 2011, the DOL closed 3,472 civil investigations, with 2,614 (75.29%) resulting in monetary results for plans or other corrective action. Recently, in a lawsuit filed by the DOL, a federal judge ordered the president of a Columbus, OH company to personally restore over $500,000 to the company’s two employee retirement plans. The DOL’s suit alleged insufficient oversight and mishandling of plan assets resulting in multiple violations of ERISA. You cannot afford to put off the review of your plan administration, fees and services.

In the beginning, The Three Amigos were playing a role. By the end, they accepted the challenge and began living the part. Will you fulfill your fiduciary duties and live your part?

Securities offered through Securities America Inc. Member FINRA/SIPC. Christine Sivak and Craig C. Gabel Registered Representatives. Advisory Services offered through Securities America Advisors, Inc. An SEC Registered Investment Advisor. Christine Sivak and Craig C. Gabel, Investment Advisor Representatives. Cedar Brook Financial Partners, LLC and the Securities America companies are not affiliated.





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