Not Hiring a Financial Adviser
Plan sponsors should always enlist the help of an adviser, Ary Rosenbaum, managing partner of The Rosenbaum Law Firm P.C., told PLANSPONSOR. Aside from purchasing fiduciary liability protection and hiring a competent third-party administrator (TPA), Rosenbaum said, there is no better protection for liability than hiring a knowledgeable adviser.
“As long as you have an employee … you need to hire a financial adviser,” he said. “It’s impossible for the plan sponsor to do that all on their own.”
Plan sponsors must keep in mind that the role of a plan adviser is not just choosing investments, he added.
Not Caring What Participants Are Paying
Rosenbaum likened this to choosing the most expensive item on the menu because someone else is footing the dinner bill. It is still the plan sponsor’s responsibility to find an affordable plan.
“Plan sponsors have to find out whether the fees being paid are reasonable or not,” Rosenbaum said.
Litigation can arise if the participants think they are paying unreasonable fees, and plan sponsors should especially be aware of this in the wake of August 30participant fee disclosure regulations, effective August 30 (see “Plan Sponsors Should Not Delay Preparing for 404(a)(5)”).
Neglecting to Annually Review a Plan
Whether it is the plan providers, plan document, plan administration or plan design, sponsors should have their plans reviewed annually. The sponsor may want to make changes simply because the company has grown and the plan no longer fits employees’ needs. When a plan increases in asset size, the TPA or bundled provider may also no longer be cost effective, Rosenbaum said.
The adviser should help with the annual review, but plan sponsors should remember to review the adviser, as well.
When reviewing the plan, Rosenbaum said sponsors should look for for several signs that either the provider or adviser should be changed:
- Plan assets have changed;
- The company has grown or experienced cutback;
- The adviser or provider is not adequately communicating; or
- The provider is not offering the products the sponsor needs.
Being Too Loyal to Providers
Although it may be tempting, plan sponsors cannot be creatures of comfort and remain with the same provider just because they have always used that provider.
“This loyalty may not be justified,” Rosenbaum cautioned, and speaking to another provider to compare services is good form as a plan fiduciary.
This loyalty might be to a provider that is incompetent or charging excessive fees, which can be detrimental to the participants.
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