The Department of Labor could be doing a lot more to help retirement plan sponsors clear up some of the confusion surrounding outsourcing practices and rules, especially with questions regarding fiduciary obligations.
That was one of the big recommendations in a report from the ERISA Advisory Council based on hearings it held in 2014.
Limiting fiduciary risk is a key motivator behind outsourcing, the report said. But employers are often unaware they still have fiduciary obligations to meet after outsourcing administration and investment management responsibilities.
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"Sponsors may not be aware of the scope and liability that they retain," the paper said.
As providers market "fiduciary protection services" and the capacity to assume "co-fiduciary liability," confusion has been created over the extent to which sponsors may actually be reducing their fiduciary risk.
Specifically, sponsors' fiduciary duties in selecting and monitoring service providers remain vague to many. The council said sponsors need additional guidance from the DOL on how to meet their obligations to effectively select and monitor providers.
It is not as if regulators have been asleep at the wheel, however. The DOL has addressed sponsors' selection and monitoring obligations often over the years, frequently in depth and in various sources, including advisory opinions and field assistance bulletins.
That, the council suggested in its report, may be the problem.
"Because this guidance has been provided over many years and in specific contexts, it is difficult for plan sponsors to find and apply it to different outsourcing situations," it said in its report.
Most of the council's recommendations to the DOL effectively boil down to clarifying communications and language.
Better benchmarking of past provider performance and pricing could also be useful to sponsors, the council said.
The council stopped sort of suggesting the DOL should develop minimum standards of care for service providers, out of concerns that doing so would "constrain flexibility and inhibit innovation in the marketplace."
The first meeting of the 2015 ERISA Advisory Council is set to kick off this Friday in Washington, D.C. Just when the DOL might act on last year's recommendations was unknown.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
