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Plan Sponsors Fail at Expressing What They Want

Practice Management

Nearly 45 years after the passage of ERISA, plan sponsors as a group are still unclear on what they look for and expect from their plan providers, which includes the retirement plan advisor. And yet they are quick to declare what they do not want from their service providers: fiduciary responsibility and fees in all forms. 

The industry and some advisors have been responsive to the lowering of fees; however, as absurd as it may sound, lowering plan-related fees does come at a cost.  

Since 2008, attentive plan sponsors have been responsible for comprehending the concepts of the QDIA and the extensive analysis required to assess target date funds. At the same time, plan sponsors and their committees have been puzzled, if not confused, by the communications from their advisors based upon the whipsaw actions caused by the Department of Labor’s phantom fiduciary rule.  

Plan sponsors have access to vast amounts of information. The same can be said of plan participants. Unfortunately, much of the information that is available is less reliable than the 408(b)2 and 404(a)5 reports that should take precedence. Plan participants who read negative stories and consume slanted views related to 401(k) or 403(b) plans will invariably question their employers, retirement committees and plan fiduciaries, forcing plan sponsors to spend time on such claims and defend their actions. 

Read more commentary from Staff Chalk here.

For a non-specialist advisor, this may not be a good time to serve retirement plans. But for a retirement plan advisor, this may be the best time ever to be in this business! Since most plan sponsors are oblivious to the distinctions between an advisor and a retirement plan advisor, it becomes incumbent upon the retirement plan advisor to set the record straight. When a retirement plan advisor describes this difference for a plan sponsor or their committee, it makes sense to also address exactly what the plan sponsor should be receiving. 

To understand what a plan sponsor should be receiving from a retirement plan advisor, one needs only to look at the recent excessive fee suit brought by Schlichter, Bogard & Denton against New York University (NYU). In summary, the case was built around claims of the fiduciary breach of the duties of loyalty and prudence under ERISA. 

Retirement plan advisors need to make themselves fully aware of the facts and circumstances of this case, including the judgment for NYU on all open motions and the termination of the case. The suit and the judge’s rulings read like a prudent fiduciary playbook for advisors and plan sponsors. If ever there existed a primer on how a retirement plan advisor can add true value to a qualified plan relationship, this is it. 

The plan did not utilize the lowest priced services. NYU committee members incorrectly assumed that they could defer some decision-making to their retirement plan advisory firm. Some committee members did rely on the recommendation of a retirement plan advisor. NYU was not praised for flawless execution. But in the end, the retirement plan advisor’s advice and the actions of a subset of the committee members convinced the court that the committee did perform adequately. 

In this case, in which the plaintiffs sought $358 million based upon NYU’s failure to implement and execute prudent processes, what is the value of their retirement plan advisor?  It may be difficult to establish the amount — but it is certainly more than the value of a non-specialist advisor.

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the winter issue of NAPA Net the Magazine.