This past summer, my wife and I moved into a new community. As in most communities, there is a robust recycling program. The only problem is figuring out the rules. Specifics aren’t written anywhere, but I’ve learned through trial and error that you need to keep paper separate from plastic and glass. And if it’s too big, it gets picked up on a separate day for bulk. But they won’t pick up recycling on bulk day because that could have been put out on the regular pick up day.
Very complex, yet we know it’s important to recycle. This reminds me a bit of plan governance and fiduciary oversight.
PSCA survey results
According to the recent Plan Sponsor Council of America (PSCA) 403(b) Snapshot Survey, a significant number of plan sponsors are unaware of the Department of Labor’s fiduciary regulatory package. This includes more than half of small plans with less than 50 participants. The survey also reports:
- up to 25% of plan sponsors don’t know whether they are fiduciaries
- 40% believe that their plan service provider(s) are fiduciaries
- 50% don’t believe that their advisors are fiduciaries
While there are many different types of arrangements, these numbers show that there is uncertainty in the air.
With or without the DOL fiduciary regulation, we’ve found that many plan sponsors don’t completely understand what it means to be a fiduciary under ERISA, and who in fact bears that responsibility.
The issue has been oversimplified into quick sound bites about acting in the client’s “best interest.” The reality is that sound bite fails to get to the real issues. The facts of the matter are twofold:
- First, it isn’t so simple. The Employee Retirement Income Security Act (ERISA) is highly complex, and there are rules that actually prevent fiduciaries from certain activities regarding the plan. If an advisor or service provider is hired to perform such a service, their fiduciary status may prevent or make it hard for them to perform such service (assuming they are to be paid for performing that service).
- Second, the vast majority of advisors and service providers already act in their clients’ best interest. That’s good business. It makes for satisfied clients. And satisfied clients generally remain clients.
Opportunities for plan sponsors
The DOL fiduciary regulatory package presents an opportunity for plan sponsors to evaluate their overall governance structure. They should make sure they understand what their fiduciary duties are and whose role it is to fulfill those fiduciary duties. That’s a best practice even if there were not impending DOL regulation, and that includes ERISA and non-ERISA plans. (Here is a link to help.)
They will also need to evaluate various plan services and determine whether or not services are fiduciary in nature. One example of this is participant education. While it’s possible to have an advisor providing fiduciary-level advice to plan participants, the plan sponsor will need to evaluate the need for such advice relative to investment education. They are two different services and the plan sponsor will have to determine what is best.
The good news is advisors can help plan sponsors sort through it, implement an appropriate governance structure and process and make sure that appropriate fiduciary roles are identified and assigned. This will likely prevent problems in the long run, ensuring the ongoing health of the plan so it doesn’t get thrown in the recycling bin.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
This document is intended to be educational in nature and is not intended to be taken as a recommendation.
PSCA is not an affiliate of any company of Principal Financial Group.
t16121207dh – 12/2016