Retirement Plan Sponsors Have A Responsibility To Review Their Plans

with No Comments

Earlier this year Greg Iacurci of InvestmentNews had an article entitled, “Allianz agrees to settle 401(k) fee lawsuit for $12 million ” which covered the trend for companies including TIAA and New York Life being sued for self-dealing in their retirement plans and then settling the lawsuits for millions of dollars.

In the case of Allianz, the company “agreed to pay $12 million to settle a lawsuit alleging it peppered its company 401(k) plan with dozens of high-cost, in-house funds.”

The accusation of self-dealing is a serious accusation. There is a fiduciary duty for an investment steward (such as Allianz who is running a retirement plan on behalf of its employees) to identify and address conflicts of interest in a manner consistent with the duty of loyalty to the participants.

Instead of being loyal to the participants, Allianz was accused of filling the funds offered in their retirement plan with their own costly funds.

What is noteworthy in these lawsuits is that when Allianz is a mutual fund vendor to another company’s retirement plan, it breaks no law by peppering another company’s retirement plan with its own high-cost funds. With another company’s retirement plan, Allianz has “switched hats,” is no longer acting as a fiduciary, and no longer has any obligation of loyalty to participants.

In other words, if your company has a retirement plan with high cost Allianz funds, someone is to blame, but it is not Allianz. Whoever acts as the retirement plan trustee is liable for failing to review fund expenses. This is a slightly different breach of fiduciary duty, but one which has also brought about dozens of successful lawsuits.

The fiduciary requirement (according to the Center for Fiduciary Study) is: “Decisions regarding investment strategies and types of investments are documented and made in accordance with fiduciary obligations of care.” That obligation includes an obligation that “Periodic reviews are conducted to ensure that investment-related fees, compensation, and expenses are fair and reasonable for the services provided.”

If you run a retirement plan at your company, you are responsible to perform periodic reviews to ensure that the plan is the best it can be for participants. Failure to perform such periodic reviews is a litigable fiduciary breach.

Marotta Wealth Management offers to perform such reviews at no cost for retirement plans in central Virginia.

We do this because we believe that our own retirement plan offering will most likely be better than the plan you have, and we want a chance to demonstrate that fact. Our analysis compares your current plan with what are easily available best practices within the industry. It also includes educating those stewarding the plan and can help plan sponsors and plan trustees identify potential deficiencies.

We first created our plan offering when one of our small business owner clients ask us to review the retirement plan proposals he had received. We thought they were all terrible and set about crafting our own dream retirement plan offering.

While we do add a fee for our services, we do not benefit from any of the fund choices or offerings in the plan. Additionally we accept full fiduciary responsibility for managing the retirement plan’s investments. Advisors who accept this responsibility are sometimes called a 3(38) Fiduciary after the section of The Employee Retirement Income Security Act (ERISA) code which defines an investment manager who is a fiduciary with respect to a retirement plan.

Most plans do not have a 3(38) fiduciary advisor even though, by law, your plan requires the plan sponsor to provide a fiduciary standard of care.

Call us today if you are interested in having us review your retirement plan.

Photo by Matthew Tkocz on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.