Is your company's 401(k) a target of the Department of Labor or IRS? The answer could very well be a resounding yes and you may be a target.
The DOL and IRS have hired thousands of new agents to review and audit 401(k) plans beginning this year. Part of these new agents' training is focused on how they will plan their assault on your 401(k). That's right, your plan!
All 401(k) plans are a target, not just the ones that have complaints filed against them. That's the bad news. But here is the good news: Your plans are in a grace period. While the DOL and IRS are in training, you have an opportunity to fully review your plan to ensure you are compliant. The grace period will end somewhere around the third quarter of 2013. That's when we expect agents to begin their activity.
While many investigations don't become public, the DOL closed 3,500 civil cases and more than 300 criminal cases during 2011. Given the increased staffing and regulatory/enforcement activity, the DOL is obviously concerned about fiduciary negligence, disclosure and curbing conflicts. The agency uses multiple sources to determine who they will investigate, including participant complaints, 5500 filings, media coverage on regulatory actions and referrals from SEC and the IRS.
Now that service providers have made the required disclosures, sponsors must review and evaluate them to avoid personal liability. Most sponsors do not have the time or expertise to perform this required fiduciary duty moving beyond receipt of the required disclosure; the reasonableness of compensation and fees must be determined. If the compensation is not reasonable, the fees can be renegotiated. Alternatively, the vendor could be replaced.
If the sponsor does not follow the aforementioned protocol, it will be in violation of their ERISA duties. Given the importance of the subject matter and the fact that some vendors are providing poor disclosures that cannot be evaluated, it makes it imperative for a plan sponsor to seek an independent fee benchmarking of its plan.
New legislation and enforcement makes it mandatory for plan sponsors to review and implement best plan practice. They need to keep in mind that the plan is for the benefit of the participants. Protecting plan fiduciaries from liability emanating from increased lawsuits and regulatory oversight, including ERISA violations, monetary sanctions and civil liability, highlight the need for skilled advisers, internal controls, a prudent approach to compliance and best practices governance. ERISA compliance requires a deep skill set and in spite of increased enforcement over fiduciary negligence, many plan sponsors and advisers fail to understand the DOL's jurisdiction or their duties under ERISA.
Given recent decisions, future lawsuits from a rejuvenated Tort Bar will no doubt center on breach of fiduciary duty surrounding:
• Imprudent selection and retention of investment options/share classes.
• Neglect in monitoring recordkeeping costs.
• Failure to negotiate relates and offset revenue sharing.
• Permitting excessive fees and expenses.
• Misrepresenting the risk of employer securities.
• Failure to administer in accordance with plan document.
Many advisers consider that the risk associated with administering plans properly is far greater than the risk of being sued. Indeed, operational mistakes can and occur. When penalties, attorney fees, recalculation costs and corrective contributions are considered, the cost of operational compliance for errors that span multiple years can be significant.
It would wisely benefit the plan sponsor to independent fee benchmark its plan. Unfortunately, benchmarking a 401(k) plan is not easy. It can be expensive, take months to complete and many other comparisons are just too simplistic to provide a true "apples-to-apples" comparison.
Maryniw Financial has partnered with an independent third party, Retirement Plan Advisory Group, one of approximately 525 adviser firms across the country. Its alliance with RPAG allows it access to the proprietary databases of 100-plus Tier 1 providers. This comparison allows for a truly independent fee benchmarking of your plan to determine the reasonableness of fees and expenses vs. services.
To learn more about this independent plan analysis, you can contact Terry Maryniw or Aaron Maryniw for a sample detailed report and complimentary fiduciary checklist.
• Terry Maryniw and Aaron Maryniw are investment advisers with Maryniw Financial, 901 E. Oak St.,, Lake in the Hills. Email firstname.lastname@example.org, call 847-658-9251 or visit www.maryniwfinancial.com.