As 401(k) and 403(b) plan sponsors wake up to the awesome and, at times, overwhelming responsibilities of running their organizations’ retirement plans, a vast majority look to third parties like independent advisors to help. These administrators are required to be prudent experts using a documented due diligence process, but most juggle 10 jobs and have little to no training—they can, however, outsource most, if not all, of the tasks.
Many aspects of the defined contribution system are confusing to small and mid-size plan sponsors, especially the roles of outsourcers, as well as who is acting as an ERISA fiduciary. To put it in language they understand, at TPSU programs, a healthcare analogy is used with plan sponsors as the primary fiduciary overseeing their family’s healthcare, hiring professionals like:
Though they can outsource most of the work and liability, plan sponsors can never relieve themselves of all fiduciary responsibilities. They must at least ensure that their vendors are qualified and are doing their jobs properly, requiring ongoing due diligence.
Advisors are usually tasked with conducting due diligence on investments, record keepers and TPAs, as well as record keeper RFPs, every three to five years or when there are material changes like a merger or sale.
Arguably, the most important role is the advisor, especially those acting as fiduciaries, as they oversee all aspects of the plan. Yet plan sponsors struggle to find independent resources to help. In a recent ongoing study with plan sponsors conducted by 401kTV, 88% use an independent advisor, with just 3% unsure—only 9% do not, which concurs with recent industry studies.
Almost 80% of plan sponsors rated their advisor excellent or very good and another 69% have conducted RPA due diligence within the last five years all of which is very encouraging. Yet 42% would want to use an independent advisor due diligence service with 36% not looking to conduct one now but would consider it in the future.
As the importance of retirement plans grows, with high stakes as ERISA fiduciary liability is the highest known to law in the world, according to a 1982 court case, and can pierce the corporate veil, the role of the RPA becomes even more critical. That role is morphing beyond Triple Fs (fees, funds and fiduciary) to helping employees with financial planning and integrating benefits.
The only aspect of a retirement plan that an RPA should not be involved with is conducting due diligence on themselves, including benchmarking and going to RFP. Ask any RPA worth their salt if they allow record keepers to conduct their own benchmarking or RFP.
Though plan sponsors are less sophisticated about their ERISA duties, they intuitively get the need to conduct due diligence, something they do for many vendors required under ERISA if using plan assets to make sure fees are reasonable. Though the RFP process may seem daunting for advisors, enlightened ones encourage clients to do it as they are confident they will prevail—no one wants to move on from a good relationship—and it can expedite the decision-making process for prospects.
Just as many current RPAs built their businesses on their ability to monitor investments and conduct record keeper RFPs improving service, lowering fees and weeding out the those unable to compete—even as most providers resisted questioning whether it was needed—enlightened RPAs will embrace independent advisor due diligence conducted by informed and unbiased third parties for the benefit of all and at the expense of those that resist weeding out pretenders accelerating consolidation, just as it did for record keepers.
#Crucial #Role #401k #403b #Management