Shouldn't It Be an HR Job

Jul 29, 2016

  1. URDRWHO
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    URDRWHO Guru

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    I'm wondering about the when DOL added the continuing duty for employers to monitor the 401(K), adding fiduciary to the employer, shouldn't it be an HR issue?

    Not sure why or where any broker or agent should take on the task of fiduciary. HR works to benefit the employer, not the employee and is supposed to stay on top of never ending legal changes. I was reading an article today speaking about employers Understanding Your Fiduciary Responsibilities Under A Group Health Plan.

    The DOL is making less and less prudent man rules to the point that anything you touch is a fiduciary issue.

    With the stricter standards it opens up the door for:

    1. More work for attorneys by filing suits
    2. More money to the government by way of fines

    I believe the benefits that the above two will receive will far outweigh any benefit to the employee. I was talking to a guy the other day that is considering to end the 401(K) for his 40 employees. To him the risk of a future disgruntled employee is too much to deal with and no other companies that are local offer a 401K.

    Government just won't stop will they?
     
    URDRWHO, Jul 29, 2016
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  2. Tahoe Ray
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    Tahoe Ray Guru

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    You could talk to a few others on this board who are much more knowledgeable than I am on 401k business but I know of advisors that were gearing up for this 6+ years ago (using this law to market low cost plans to employers due to potential litigation) so I don't think that it is really anything new.
     
  3. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    It has been this way for a good while now. Im not exactly sure what aspects you are speaking of... but the Plan Sponsor is almost always considered the Plan Fiduciary. And at most small businesses, the Plan Sponsor is the Owner of the business. That means Fiduciary prudence is the ultimate responsibility of the Plan Sponsor (Business Owner).

    The owner can outsource their Fiduciary duties under the 401k Plan. But unless there is a contract stating otherwise (such as a 3(21) or 3(36) or 3(16) Fiduciary), the Plan Sponsor is liable for the actions of those 3rd parties.

    It has been like this for at least the past 8 years minimum... which is the amount of time I have been involved in the 401k market.


    HR is simply an employee of the business. That means they are acting under direction of the Plan Sponsor. People working in HR, especially if they are making decision related to the Plan, do take on a certain amount of Fiduciary Liability. But they are in no way considered the Plan Fiduciary. The Plan Sponsor and Plan Fiduciary are legal titles that are specified in the Plan Documents.


    By outsourcing Plan operations to qualified 3rd parties, the Plan Sponsor does reduce their liability related to the Plan. But it is never eliminated.
    Even when the 3rd party contractually signs onto the Plan as a limited Fiduciary in some form or fashion, the Plan Sponsor still maintains a small amount of liability related to that function.



    The reason this surprises some Advisors is that focus on 401k Plans has been greatly enhanced not just by the DOL, but by employees and employers. They are more aware of the Fees within the Plan and are asking a lot more questions. And rightly so. 401k Plans are considered the #2 most important benefit by white collar employees after health insurance.



    Yes there has been an increase in lawsuits related to 401k Plans. But not all are frivilous. There are a lot of business owners who have no clue what their Fiduciary Duties are (advisors too). Ive seen some Plans that were being extremely neglected. And many business owners underestimate the liability related to their Plan. In my area alone there are over 100 Plans that are not 404c compliant...
     
    Last edited: Jul 30, 2016
    scagnt83, Jul 30, 2016
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  4. djs
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    djs Super Moderator Moderator

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    As a small business owner, I outsourced my 401K Fiduciary responsibilities to a company called "Bernie Madoff Investments, INC". You should look it up, they do an awesome job for me.

    My employees are impressed everytime we get quarterly statements from them. Awesome returns on the investments.

    We did have an employee retire recently and there are some hiccups in getting him started with the withdrawals, but I've been assured, they will work that out.

    Dan

    P.S. This is clearly not investment advice.
     
    djs, Jul 31, 2016
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  5. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    I wish we could nominate posts for all time best... I love this one :D



    Whats ironic is that your jest is not that far off from reality. We are talking about Fiduciary Duty and the prudence that goes along with that. Lots of big time pension funds failed to fulfill their Fiduciary prudence with that whole debacle. They invested in the name with no due diligence at all. Even after a few years when they should have seen the signs, still they did nothing.

    The big difference between those Pension Fund managers and a Small Business Owner is the Fund managers have arbitration clauses in their contracts. Small Business Owners who sponsor a 401k Plan are at risk of lawsuit when they fail their Fiduciary Duties... plus their pockets are not nearly as deep!
     
  6. yorkriver1
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    Just out of curiosity, would there be any relationship between the fees charged by the 401k plan and the compensation level of the agent/broker involved? If not, then why wouldn't agents/brokers try to find plans with the lowest fees? (if so, these days, looks like that may be more important regardless of compensation)
    There is at least one independent rating firm for individual company plan ratings, so employees can compare their employer with others. www.brightscope.com