Why Retirement Plan Sponsors Need a Fiduciary Advisor in a Volatile Market

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By Vanessa McClure

When Americans revisit their investment choices during a down market, they often turn their attention to employer-sponsored retirement plans. Companies should consider the following recommendations to protect themselves and support their employees—in any market condition.

The Importance of Documentation

What if someone asks you, “Why are investments in the plan losing value?” Plan sponsors need a documented, prudent process for selecting, monitoring, and replacing investment options in their plan.

As a best practice, companies should maintain an Investment Policy Statement, minutes from plan review meetings, and a history of benchmarking the plan against the industry. Not reviewing your plan frequently enough or failing to document decisions can lead to a breach. Having a comprehensive checklist as the central repository of the schedule and completion of compliance processes is essential for proper documentation.

Benchmark in Any Market

A retirement plan fiduciary advisor proactively manages the plan sponsor’s fiduciary obligations, benchmarks the plan every 2-3 years, and advises on prudent processes to make sure nothing slips through the cracks.

When was the last time you benchmarked the plan? As a plan sponsor, you should review provider fees every 2-3 years, seeking to control what you can control. Fees chip away at returns and employee financial outcomes in bull and bear markets. Benchmarking confirms fees for services received are reasonable and easily explained. Be on the lookout for hidden or indirect fees.

Participants Deserve Ongoing Education

The right advisor will provide financial education that goes beyond how to save in the retirement plan. Participants need to understand their full financial picture, especially during market corrections. A fiduciary advisor can offer objective, comprehensive financial education for employees.

The volume of participant investment changes within retirement plans jumped up during the recent downturn. Such a response indicates that participants need support and education around their personal investment strategy and, more importantly, help in sticking to that strategy for long-term goals (such as retirement). A fiduciary advisor will educate employees about investing for the long-run, and help participants establish an investment philosophy they can use to withstand market conditions.

Do you have professionally managed allocation strategies in your plan? Model portfolios and target-date funds can help employees stay the course during market volatility. Research shows that employees who stick with a professionally managed strategy see better results over time than those who select their own funds from the lineup.

Litigation and Fines on the Rise

The stakes are high. Plan sponsors who make mistakes are held accountable to restore lost profits. The Department of Labor oversees the federal law that governs retirement plans. Any plan sponsor who breaches any of their responsibilities, obligations, or duties is personally liable for losses to the plan resulting from the breach.

Given the complexity of sponsoring a 401(k) plan, falling short on fiduciary responsibilities is easy to do and does not necessarily involve unethical behavior or gross negligence.

A Fiduciary Advisor Offers Protection

Don’t be fooled by consultants or co-fiduciaries—such providers do not offer the same fiduciary protection.

Companies hire a 3(38) Fiduciary Investment Advisor to legally offset the liability related to selecting monitoring and replacing investments.

We Can Help

The Retirement Plan Advisory Group at Brighton Jones maintains an ERISA 3(38) position across our entire investment lineup. Most others in the industry will not take that level of fiduciary responsibility because they are afraid to take on the liability that comes with it.

At Brighton Jones, adopting a complete investment fiduciary stance aligns with the objective, client-focused principles on which we were founded. Reach out to our team of retirement plan fiduciary advisors for a complimentary and independent fiduciary fee analysis of your current providers.

Vanessa McClure serves as an associate in the Brighton Jones Retirement Plan Advisory Group. 

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