Five Things Every ERISA Fiduciary Needs to Do

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By Eric Sholberg, AIFA

As an ERISA fiduciary, there are certain standards you must uphold. Fulfilling your obligations is the best way to eliminate your risk and help your employees reach their retirement goals. Falling short means not only are you exposing your company to potential litigation, but you are also likely (unintentionally) reducing employee retirement outcomes.

What can you do to avoid this situation? Here are five things you should be doing as an ERISA fiduciary:

1. Pay Attention to Investment Costs

There are many different dynamics within the world of investment funds and their related costs. Is the retirement plan’s investment philosophy and related methodology aligned with active management or indexing? Will the plan pay fees through revenue-sharing arrangements or will it use institutional share classes? No matter the philosophy, the plan fiduciary must intentionally contemplate the options and how they relate to the best interests of plan participants, decide on a course of action, document results, and follow a process that is consistent with the decision.

2. Conduct Regular Meetings

Holding regular meetings and documenting those meetings is critical, both in the name of transparency and operational due diligence. You should show what the plan’s investment committee—even if it is a committee of one—has reviewed, contemplated, decided upon, and how those recommendations are based solely on the interests of plan participants.

Unfortunately, the financial services industry has a long history of selling products that are aligned with the interests of the firms and brokers pushing them.

3. Follow Federal Guidelines

The Department of Labor (DOL) has issued specific interpretations of how a retirement plan must be governed under ERISA. As a fiduciary, it is a necessity that you know the rules you are expected to uphold under federal law.

4. Monitor Service Providers and Understand Their Motivations

Unfortunately, the financial services industry has a long history of selling products that are aligned with the interests of the firms and brokers pushing them, rather than the individual customer or investor. Whether it is a financial advisor, life insurance salesperson, or investment broker, if they are meeting with a company’s employees, it is essential that the plan’s administrator and fiduciary understand what is being sold and the incentive and motivations for selling it. What is the basis of the recommendation? Does the financial representative earn an undisclosed fee? Is there a different product in the market that would charge a lower fee? Is the amount of the commission or fee being earned by the financial professional reasonable and in the best interests of the participant?

These are hard, nebulous questions to answer and therefore we believe that the best course of action for a retirement plan fiduciary is to take the product sale out of the process. Hire an advisory firm that only offers advice and does not sell products. This is the only way to assure your employees receive advice that is transparent and unbiased.

5. Make Sure Fees Are Commensurate With Services Provided

There can be many service providers within a retirement plan. The four essential roles are the advisor, the recordkeeper, the outside administrator, and the custodian. The fiduciary must monitor the services provided by each, as well as any other providers to whom fees are being paid. This includes having independent assessments completed regularly on provider fees, understanding the services provided by the vendor, and how they are adding value to the plan and participants. The obligation is not to ensure the fees are the lowest, but that the fees are reasonable given the services being provided.

Managing the company retirement plan doesn’t have to be complicated, but following the guidelines from DOL and leveraging a prudent process will reduce your risk and increase the likelihood of better employee retirement outcomes. Remember, one of the primary tenants of retirement plan law is, as a fiduciary, you need to become an expert in ERISA regulations or hire someone who is.

Brighton Jones serves as a fiduciary to our clients at the highest level available under the law. As an ERISA 3(38) investment manager to our clients, we must always act with complete integrity and transparency. We also have a team of experts with extensive experience and training in ERISA fiduciary rules, regulations, and DOL best practices. This combination helps ensure our clients and their employees receive the highest level of plan advice and support available in the market today.

Are you looking for advice specific to your situation? Reach out to our team of retirement plan advisors.

Eric Sholberg, AIFA serves as a retirement plan advisor at Brighton Jones.

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