Confusion about Responsibilities
It is not surprising when a business owner says "we have people who take care of that" when referring to their company's 401(k) plan. In fact, many employers do have people who take care of things: TPAs, accountants, brokers, agents, consultants, and attorneys. This is good. But by making that comment, business owners and executives (or for that matter tax-exempt entity executives when they refer to their 403(b) plans) reveal a misunderstanding of a key aspect of plan sponsorship. When one of the people who takes care of things makes a mistake, the company, or someone at the company, is exposed to liability. The business owners, or executives, in fact, are responsible—not the provider. This is due to the complicated maze of fiduciary liability under the federal law known as ERISA. Advisors and plan sponsors who have command of this essential fact are already a step ahead.
Many books have been written but none in plain English
Many books have been written about ERISA fiduciary responsibility but none have attempted to cover the topic comprehensively in language that business people understand and many provide endless lists of rules with no instruction on how the rules might be complied with. This book takes aim at that void by speaking non-technically and by showing plan sponsors and advisors how to manage their obligations under the rules.
Fiduciary standards are high and exposure to liability is great
ERISA's fiduciary standards are "the highest known to the law." Further, as has often been repeated, a "pure heart" and an "empty head" are not enough to avoid liability as an ERISA fiduciary. If they are to have any chance at compliance, plan sponsors must know who is a fiduciary, what plans are subject to ERISA, and what fiduciary obligations ERISA imposes.
If a plan sponsor is left with liability because of the actions of others, doesn't it make sense for it to know something about the plan and the providers servicing it? An employer that employs drivers will qualify the drivers for the job and monitor their performance because employing a driver without a license or who has a health or substance problem could cost the employer a lot of money. It makes good business sense to take precautions. It's no different for a 401(k) or 403(b) plan sponsor. The sponsor needs to know whether plan service providers are capable of doing the job, what they are doing, and whether they are worth what the plan is paying them.
The sticking point-- how to get it done
The very real sticking point for the plan sponsor is figuring out what, in practice, needs to be done. This is not easy because 401(k) and 403(b) plans are burdened with complicated fee arrangements involving various types of indirect compensation, asymmetrical relationships in which the providers know more than the sponsor, and complicated rules imposed by the federal agencies with authority over these plans. Plan sponsors have limited capacity to deal with this complexity. An advisor who is cognizant of these rules can provide significant value in helping a plan sponsor survive and perhaps thrive under them.
While some in the government might think so, managing a plan does not come before running the business. But plan sponsors have to do something. Their liability is not going away simply because they have a business to run. No one will accept the argument that "I had lots of other things to do," including employees (and their attorneys), government agencies, and the courts. Employers have a plan to run, too. The surprising thing is that plan sponsors can manage their plans and their plans' providers without sacrificing their core mission of running the business. Doing so involves organizing plan oversight in critical areas and seeking expert help when a matter cannot be handled "in-house."
The book shows business owners and executive how to do it
Good fiduciary governance requires an ongoing commitment to process and procedure, or what some have called "procedural prudence." It requires keeping abreast of the latest regulatory and retirement industry developments and overseeing service providers to ensure that they are capable of and are performing their plan obligations for a reasonable fee.
As mentioned earlier, the aim of this book is to show plans sponsors, executives and boards, and their advisors how to manage a plan --- effectively, efficiently, and economically. This book provides real and useful insights into the "how–to" of plan management and fiduciary responsibility. It will be your day-to-day resource for common sense information on how to run a plan.
It is not surprising when a business owner says "we have people who take care of that" when referring to their company's 401(k) plan. In fact, many employers do have people who take care of things: TPAs, accountants, brokers, agents, consultants, and attorneys. This is good. But by making that comment, business owners and executives (or for that matter tax-exempt entity executives when they refer to their 403(b) plans) reveal a misunderstanding of a key aspect of plan sponsorship. When one of the people who takes care of things makes a mistake, the company, or someone at the company, is exposed to liability. The business owners, or executives, in fact, are responsible—not the provider. This is due to the complicated maze of fiduciary liability under the federal law known as ERISA. Advisors and plan sponsors who have command of this essential fact are already a step ahead.
Many books have been written but none in plain English
Many books have been written about ERISA fiduciary responsibility but none have attempted to cover the topic comprehensively in language that business people understand and many provide endless lists of rules with no instruction on how the rules might be complied with. This book takes aim at that void by speaking non-technically and by showing plan sponsors and advisors how to manage their obligations under the rules.
Fiduciary standards are high and exposure to liability is great
ERISA's fiduciary standards are "the highest known to the law." Further, as has often been repeated, a "pure heart" and an "empty head" are not enough to avoid liability as an ERISA fiduciary. If they are to have any chance at compliance, plan sponsors must know who is a fiduciary, what plans are subject to ERISA, and what fiduciary obligations ERISA imposes.
If a plan sponsor is left with liability because of the actions of others, doesn't it make sense for it to know something about the plan and the providers servicing it? An employer that employs drivers will qualify the drivers for the job and monitor their performance because employing a driver without a license or who has a health or substance problem could cost the employer a lot of money. It makes good business sense to take precautions. It's no different for a 401(k) or 403(b) plan sponsor. The sponsor needs to know whether plan service providers are capable of doing the job, what they are doing, and whether they are worth what the plan is paying them.
The sticking point-- how to get it done
The very real sticking point for the plan sponsor is figuring out what, in practice, needs to be done. This is not easy because 401(k) and 403(b) plans are burdened with complicated fee arrangements involving various types of indirect compensation, asymmetrical relationships in which the providers know more than the sponsor, and complicated rules imposed by the federal agencies with authority over these plans. Plan sponsors have limited capacity to deal with this complexity. An advisor who is cognizant of these rules can provide significant value in helping a plan sponsor survive and perhaps thrive under them.
While some in the government might think so, managing a plan does not come before running the business. But plan sponsors have to do something. Their liability is not going away simply because they have a business to run. No one will accept the argument that "I had lots of other things to do," including employees (and their attorneys), government agencies, and the courts. Employers have a plan to run, too. The surprising thing is that plan sponsors can manage their plans and their plans' providers without sacrificing their core mission of running the business. Doing so involves organizing plan oversight in critical areas and seeking expert help when a matter cannot be handled "in-house."
The book shows business owners and executive how to do it
Good fiduciary governance requires an ongoing commitment to process and procedure, or what some have called "procedural prudence." It requires keeping abreast of the latest regulatory and retirement industry developments and overseeing service providers to ensure that they are capable of and are performing their plan obligations for a reasonable fee.
As mentioned earlier, the aim of this book is to show plans sponsors, executives and boards, and their advisors how to manage a plan --- effectively, efficiently, and economically. This book provides real and useful insights into the "how–to" of plan management and fiduciary responsibility. It will be your day-to-day resource for common sense information on how to run a plan.
