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Where Do you Go for Financial Advice?
Judging by which panel discussions attracted the most attendance at a recent pension industry seminar, Financial Engines President and CEO Jeff Maggioncalda says the two paramount concerns of plan sponsors right now are limiting their fiduciary liability and helping reluctant investors better manage their retirement accounts. In his view, the two issues are fundamentally related. "One of the greatest sources of fiduciary risk," he says, "is the poor decisions these reluctant investors are making or not making: concentrating all of their holdings in company stock or the stable value default fund, failing to save adequately because they ignore the fact that they could save more, or ignoring the company match." By providing 401(k) investors with advice on how to manage their accounts, he continues, sponsors lessen the chance that their employees will manage their accounts inappropriately and find themselves with inadequate savings when they retire. Sherrie Grabot, president and CEO of advice provider Guided Choice, agrees. A participant who has been told he needs to save 20% of his income for retirement but only saves 3%, she posits, will have a hard time convincing a court his employer is responsible for his empty nest egg. For Richard Magrath, president of advice provider ProNvest, the benefits of offering advice go beyond helping plan participants become better investors. "We keep records of each and every interaction we have with participants," he explains. "By providing plan sponsors with defensible documentation, we are making them an unattractive defendant." Maggioncalda says that, while some of the corporate attorneys he runs across still harbor concern that their companies might increase their fiduciary liability by offering advice to plan participantson the theory that retirees might later blame them for bad advicemost ERISA attorneys now view advice as either a neutral event or an aid in reducing liability. Even the federal government has taken the latter stance. As far back as September 2000, Leslie Kramerich, then the acting assistant secretary of labor for the Pension and Welfare Benefits Administration (now the Employee Benefits Security Administration), observed that employers could offer advice without significant risk of liability, and that offering access to informed and unbiased advice could "significantly reduce the potential for employee dissatisfaction and possible litigation." top
Judging by which panel discussions attracted the most attendance at a recent pension industry seminar, Financial Engines President and CEO Jeff Maggioncalda says the two paramount concerns of plan sponsors right now are limiting their fiduciary liability and helping reluctant investors better manage their retirement accounts. In his view, the two issues are fundamentally related. "One of the greatest sources of fiduciary risk," he says, "is the poor decisions these reluctant investors are making or not making: concentrating all of their holdings in company stock or the stable value default fund, failing to save adequately because they ignore the fact that they could save more, or ignoring the company match."
By providing 401(k) investors with advice on how to manage their accounts, he continues, sponsors lessen the chance that their employees will manage their accounts inappropriately and find themselves with inadequate savings when they retire. Sherrie Grabot, president and CEO of advice provider Guided Choice, agrees. A participant who has been told he needs to save 20% of his income for retirement but only saves 3%, she posits, will have a hard time convincing a court his employer is responsible for his empty nest egg.
For Richard Magrath, president of advice provider ProNvest, the benefits of offering advice go beyond helping plan participants become better investors. "We keep records of each and every interaction we have with participants," he explains. "By providing plan sponsors with defensible documentation, we are making them an unattractive defendant."
Maggioncalda says that, while some of the corporate attorneys he runs across still harbor concern that their companies might increase their fiduciary liability by offering advice to plan participantson the theory that retirees might later blame them for bad advicemost ERISA attorneys now view advice as either a neutral event or an aid in reducing liability. Even the federal government has taken the latter stance. As far back as September 2000, Leslie Kramerich, then the acting
assistant secretary of labor for the Pension and Welfare Benefits Administration (now the Employee Benefits Security Administration), observed that employers could offer advice without significant risk of liability, and that offering access to informed and unbiased advice could "significantly reduce the potential for employee dissatisfaction and possible litigation."
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