"It can't happen to me" rings the oft-quoted lament of the denier. Today's 401(k) plan sponsors flummox financial professionals everyday with their collective unwillingness to recognize the extent of their fiduciary liability. Even when ERISA attorneys present them with blunt reality (see "401(k) Plan Sponsors and the Risk of Fiduciary Liability"), we regularly see the simple mistakes of plan sponsors leading to DOL fines and court settlements.
The DOL reported in a 2011 fact sheet it collected more than $1 billion in fines in FY 2010. If that doesn't scare the snot out of the typical 401(k) plan sponsor, the DOL revealed nearly four out of five of its investigations resulted in "monetary results for plans or other corrective action." Those, as they say, are worse than Vegas odds. But that's not the worst of it.
Things just got a lot tougher for 401(k) plan sponsors. Earlier this month, Phyllis Borzi, Assistant Secretary of Labor's Employee Benefits Security Administration, announced the new fee disclosure guidelines for ERISA plans. While fee disclosure falls under the duties of service providers, the DOL now requires plan sponsors to reveal those fees at both the plan level and at the participant level.
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Here's where things start to go south. What happens if a service provider fails to disclose its fees or only discloses a portion of them? Will plan sponsors get by merely through offering their best efforts to obtain this fee information? Probably not, if you read between the lines of the DOL comments. Borzi's actual comment to the press indicated the 401(k) plan sponsor must fire any service provider that fails to properly disclosure its fees.
So, in addition to knowing all the ins and outs of their specific plans, and the ERISA laws that govern them, plan sponsors have now been summarily deputized by the DOL to enforce compliance on service providers.
If you think about it, it's a smart move by the DOL. It's also in keeping with the whole self-policing philosophy that pervades this Internet generation. What better way to protect the masses if the masses have the authority to unilaterally punish wrongdoers (albeit, it's only by firing them). If the DOL is really inventive, it can create a disclosure site where plan sponsors can report their compliance related lack-of-disclosure firings.
This would help other plan sponsors become aware of potential non-compliance liabilities resulting from hiring these vendors. In turn, a public disclosure file, similar to the on-line "complaints" log the SEC provides to investors, might just provide an incentive for service vendors to comply.
In the end, this just might make things a lot easier for 401(k) plan sponsors.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
