your legal obligations Under ERISA
As a sponsor of a retirement plan, your company has a fiduciary obligation to the beneficiaries of the plan. Being a fiduciary means you and your company are legally responsible (and personally liable) for maintaining a plan that has reasonable fees, appropriate investment choices, and is in the best interest of employees.
Retirement Plan lawsuits against employers are on the rise
Most retirement plan providers leave the employer fully liable
You can limit your fiduciary liability through:
Resources are available below to help you understand your responsibilities and options.
Retirement Plan Lawsuits Are Commonplace
Lawsuits related to retirement plans are on the rise, with companies being held responsible for poor investment choices, high fees, lack of a documented review process, and mistakes with plan filings and disclosures. Even stock broker-dealers, insurance companies, and mutual fund companies are being sued by their own employees for retirement plan issues.
Purposeful Strategic Partners helps employers reduce their fiduciary liability, lower retirement plan costs, and provide better retirement plans for employees.
Resources & Articles
401(k) Lawsuits: What are the Causes and Consequences? - by Boston College Center for Retirement Research
Meeting Your Fiduciary Responsibilities - by the U.S. Department of Labor
What You Should Know About Recent Trends in 401(k) Fee Litigation - by ERISA attorneys for BankDirector
How To Manage 401(k) Lawsuit Risks In 4 Steps - by Forbes
Proper Fiduciary Delegation can
If you were surprised that your retirement plan is a source of company and personal liability, you can reduce your liability through proper delegation of your fiduciary duty. Purposeful SP can work with your plan as a fiduciary advisor which has taken on legal liability for the plan under ERISA section 3(38). Here are your options for delegating your fiduciary obligations:
NO DELEGATION - YOUR COMPANY HAS FULL FIDUCIARY RESPONSIBILITY
Under this model, the plan sponsor (your company) makes the investment choices for the plan, functions as a prudent investment expert, ensures regulatory compliance, and retains full liability for any potential problems. Most broker-dealer, mutual fund company, and insurance company plans are under this model. A plan provider may offer a menu of proprietary insurance or mutual fund products, and may offer recommendations (not advice) from a non-fiduciary advisor, but your company is still fully liable. Many companies believe they have delegated their fiduciary responsibility to an outside company but in reality have not.
3(21): CO-FIDUCIARY ADVISOR
Your company partners with a fiduciary advisor who offers advice on the plan and in selecting investment options within the plan. This provides some protection for your company, but your company still retains liability from exercising fiduciary discretion and acting as an investment expert. Under this model you and your provider share responsibilities, but your company is still fully liable for plan issues.
3(38): DELEGATION TO A FIDUCIARY ADVISOR
Your company delegates authority in writing to a qualified fiduciary advisor (like Purposeful SP) who then makes discretionary decisions on the investment options within the plan. Your company can choose to fully delegate to the advisor, which shifts the company’s role from an investment expert to acting as a manager who monitors the investment expert. An advisor taking on the full 3(38) fiduciary status greatly reduces the company’s liability for investment decisions.
3(16) + 3(38): DELEGATION OF ADMINISTRATIVE AND INVESTMENT DUTIES
In addition to delegating the investment decisions, your company delegates the administrative functions of the plan. This includes the regulatory compliance, tax filings, and notifications required by law. Under this model, your company has reduced your fiduciary responsibility to managing and monitoring plan providers, shifting much of the liability for the retirement plan from your company to the providers you have selected. Purposeful SP offers this service as the 3(38) fiduciary plan advisor in partnership with PCS as the 3(16) plan administrator.
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