It turns out that retirement plan sponsors find themselves as torn apart as the Montagues and the Capulets, the Hatfields and the McCoys, the Republicans and the Democrats.
But in the context of retirement planning, the battle is over how plan sponsors perceive fiduciary risk. Plan sponsors without a financial advisor are drawn to anything related to lower retirement plan costs.
But sponsors working with an advisor say they are drawn to — and rely on advisors for — sound plan design and meeting fiduciary obligations, according to the findings of a recent survey by MassMutual Financial.
A decade ago, the tension between retirement plan sponsors without advisors and those relying on one might have been considered the modern-day equivalent of ancient blood feuds — except with no loss of blood.
But with new fiduciary obligations governing retirement advice and a raft of new lawsuits against 401(k) plans, the potential losses amount to the equivalent of financial blood pouring from the wounds of vanquished rivals.
“Sponsors who do not currently work with an advisor are primarily interested in working with an advisor to reduce costs,” the survey found in one of its key findings. “Help with fiduciary responsibilities is not as important to them.”
Small retirement plan sponsors tend to worry more about costs. Larger retirement sponsors with tens of thousands of employees are more concerned with complying with standards of fiduciary conduct required by the Employee Retirement Income Security Act.
Sponsors Unsure of Fiduciary Responsibility
A surprising number of plan sponsors also revealed they were unsure about whether they bore any fiduciary responsibility, and if so, how much.
One-third of plan sponsors with an advisor say they are not a fiduciary to their plan. Another 15 percent of plan sponsors with an advisor say they are not sure whether they – the sponsors – are a fiduciary to their plan.
Only one-third of plan sponsors who use an advisor say their advisor is a fiduciary to their plan, and another one in five sponsors is not sure whether their advisor serves as s fiduciary, the survey found.
It’s not an oversight to be taken lightly, not with Department of Labor regulators putting the final touches on how financial advisors are to managing retirement assets.
The penalty for plan sponsors not meeting their fiduciary obligations is playing out in federal court. As many as 11 major class-action lawsuits were reportedly filed against 401(k) sponsors or providers of retirement products in the fourth quarter of 2015.
Plaintiffs allege life insurance carriers and investment companies are charging excessive fees, offering imprudent investments, uncompetitive bidding practices and revenue-sharing payments among the retirement plan managers and mutual fund companies.
Upping the stakes with regard to fiduciary responsibility of 401(k) retirement assets, however, is likely to benefit good advisors and advisory firms, and provides the perfect opportunity for advisors to articulate their value, Foster said.
Understanding a plan sponsor’s discretionary responsibility between a 3(21) fiduciary and a 3(38) fiduciary, for example, and explaining those differences to a plan sponsor could mean the difference worth hundreds of millions of dollars if and when a dispute ends up in court.
“To take on the responsibility, that in itself is a fiduciary action,” Foster said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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