Watch as Guardian retirement industry expert Steve Davis answers this question and addresses how financial professionals can help plan sponsors better understand their fiduciary responsibilities and meet their fiduciary duties. For more information, click here.
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Q: What are the primary fiduciary responsibilities of a plan sponsor?
A: Every 401(k) plan must have at least one named fiduciary, who has the responsibility of administering the plan and selecting investment options. For most plans, the plan sponsor serves that role. A fiduciary is any person who is 1) named in the plan document as a fiduciary or is appointed as a fiduciary, 2) Exercises discretionary authority or control over plan assets and/or the management of the plan, or 3) provides investment advice for compensation with respect to plan assets. Fiduciaries must abide by certain rules of conduct including:
1. Act solely in the interests of plan participants and beneficiaries. 2. Act with care, skill, prudence, and diligence. 3. Diversify the investments of the plan. 4. Administer the plan in accordance with the plan documents and instruments. 5. Evaluate the reasonableness of fees and charges paid by the plan.
Some of the best ways for a plan sponsor to deliver on their fiduciary responsibilities is to document their decisions, establish an investment policy statement, select & monitor investment options, and communicate and educate plan participants. Many small business owners should work with their financial professionals to determine how different service providers can help meet and mitigate their fiduciary responsibilities.
Q: What's the best way to engage a business owner who currentlyoffers a 401(k)?
A: One of the best ways to engage a plan sponsor is to offer a free retirement plan assessment. This can come in the form of asking probing questions about the various features and benefits of the current plan from fiduciary support, plan design, fee disclosure support, compliance & administration, to investment features and participant engagement. Does the plan have an investment policy statement and does the sponsor get support selecting and monitoring investment options? Is the plan's design optimizing tax benefits for the business owner? Have they ever failed a compliance test (i.e. ADP/ACP Test?). Are regularly enrollment and education meetings scheduled to help encourage participation and savings? Is the financial professional providing an annual plan review? These types of questions can help you gain stronger understanding of the current product and services being utilized by the plan and identifying potential problem areas of the business owner.
Q: What's the difference between an ERISA Section 3(21) and an ERISA Section 3(38) fiduciary?
A: When evaluating what fiduciary support services to offer to business owners, it's important to understand that fiduciary support services exist at both the plan-level, to help sponsors monitor and select investment options made available to their plan participants, and at the participant level, where investment decisions are made on behalf of plan participants for their individual retirement account (typically done within a managed account). Whether at the plan-level or at the participant-level, there are different ranges of fiduciary support that most retirement solution providers make available. ERISA Sections 3(21) and 3(38) outline the obligations and responsibilities of an ERISA Fiduciary. An ERISA Section 3(38) fiduciary provides discretionary investment management of assets whether at the plan or participant level. A 3(21) fiduciary provides non-discretionary investment advice services - i.e., they provide recommendations that must be accepted by the plan sponsor/ plan fiduciary. Additionally, 3(21) fiduciaries can provide services that include a negative election process that helps to automate the recommendation process. All are acceptable solutions to help mitigate fiduciary risk for business owners.
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About Ask The Experts
Ask the Experts is an educational video series, hosted by Financial Planning that features an engaging Q&A with financial and retirement industry experts. This series, sponsored by Guardian, addresses questions and discusses how financial planners can succeed in today's 401(k) marketplace, including small-market needs, strategies, service and support as well as resources. Watch these videos to learn more.
Check out Guardian's additional resources:
> Large Plan Services for Small Plan Clients
> Help Plan Sponsors Understand their Fiduciary Responsibilities
> Learn More about Guardian Retirement SolutionsTM