PD08: Duty Bound: Best Practices for Plan Fiduciaries

Within the retirement services community, the duties and responsibilities implicit for fiduciaries are often unclear, leading some to be unsure of whether or not they are, in fact, fiduciaries.

To anyone who might be confused, Fred Reish, Managing Director at Reish Luftman Reicher & Cohen, offered these words of guidance, “Assume you’re a fiduciary until proven otherwise.”

align=”center”> The Panel Audio File

During PLANSPONSOR ‘s 2008 Plan Designs Conference, Reish was joined in this discussion by Michael DiCenso, National Practice Leader/President at Gallagher Retirement Services, and Jim O’Shaughnessy, Managing Partner at Sheridan Road, with Nevin Adams, Editor-in-Chief of PLANSPONSOR Magazine and PLANSPONSOR.com , serving as moderator. O’Shaughnessy summarized the concerns of their debate and helped to focus attention on an issue facing many fiduciaries today when he asked, “How do we work with plan sponsors and implement something where it’s cost effective for the plan sponsor and achieves the end goals?”

Fiduciaries Differentiated

Reish distinguished between primary and advisory fiduciaries: those who make investment decisions and those who make recommendations. He claimed that while the Employee Retirement Income Security Act (ERISA) strictly regulates fiduciaries, similar guidelines for others who provide services to or work for plans are nonexistent.

For fiduciaries to navigate ERISA and provide cost effective services for their plan sponsors, he suggested following a comprehensive process. First, it is important that fiduciaries identify, investigate, and analyze; they need to be aware of exactly what their duties are and be able to find and evaluate information that will help them make informed decisions. They need to meet with the individuals that have been granted responsibility by the plan, then implement their ideas.

By following and repeating this process-consistently reviewing their plan and how it matches up to similar plans and those of competitors-and being willing to make any necessary changes by recognizing and correcting any issues that may arise, fiduciaries will fulfill their responsibilities and be, in Reish’s words, “almost guaranteed to have a successful plan.”

The panelists all agreed that documentation of processes and regular benchmarking would not only help make sure a plan works as efficiently as possible, but would also provide protection against potential lawsuits. Reish pointed out that one of plan sponsors' greatest fears is that they could get sued if their participants do not believe they have done enough-or believe they made a mistake-while preparing them for retirement. With such a threat, many are likely to do less for their participants rather than more, avoiding "unnecessary" transactions that could go wrong.

However, that hesitancy can be detrimental, and thus, benchmarking and documentation provide some protection while also offering opportunities for fiduciaries to explore their costs and measure the success of their plans. They can therefore fulfill what DiCenso called one of their "greatest fiduciaries duties," to understand the fees within a plan and their comparative reasonableness. In order to do this, DiCenso suggested fiduciaries consider their price against services provided. Reish suggested participation rates and benefit adequacy as other gauges of plan success.

While living up to clients' demands and ensuring that they are well-equipped for retirement is difficult, by employing an evolving program that is regularly documented, fiduciaries can at least be assured that they have realized, and possibly even exceeded, ERISA's expectations. "Participants work in the spectrums of maximum fear and maximum reward," said O'Shaughnessy. In order to get results, "you cannot stop being proactive and making sure that you're there for your participants and doing everything you can to be accessible and to provide them with information and make the plan easy and efficient to use," he added.

- Sara Kelly