In Practice July 8, 2007

Bringing a PPA Fiduciary Adviser to a Retirement Plan

Suggesting that many retirement plan advisers will become fiduciary advisers under the Pension Protection Act (PPA), attorney Fred Reish, Partner at Reish Luftman Reicher & Cohen, said plan sponsors should expect these advisers to be experts on a successful retirement plan, not just investments.
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Even with the PPA, there is still a fundamental misalignment in the industry between sponsors, providers and participants, Steven Greenstein, VP with SunGard ProNvest commented. Sponsors are focused on liability and costs, providers are delivering services in a one-size fits all approach, and participants are focused on themselves, he said. In order to have a successful system, Greenstein suggested, it is critical to bring these three groups into alignment.

There are, and will continue to be, participants in retirement plans who need advice, commented Joan McDonagh, Manger, 401(k) Technical Resources, Great-West Retirement Services; whether because of large account balances, or to understand their risk tolerance or because they do not want to be invested in the default and want to be advised in selecting an appropriate lineup.

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The focus should be on participants, so both sponsors and providers commit to helping participants get on track and develop a retirement income plan. Doing work strictly at the plan level might not be enough to help participants achieve retirement security, Lou Harvey, President of DALBAR said; therefore you have to do work at the plan level, which can be done through hiring a fiduciary adviser.

Benchmarking the Advice and Adviser

When hiring a fiduciary adviser, a plan sponsor is responsible for selecting, monitoring and auditing the adviser. So far, Harvey said, the Department of Labor (DOL) has only given guidance for the selection and monitoring process.

Plan sponsors have no benchmarks by which to evaluate the advice and advisers, Greenstein said. Luckily, they have no liability for the advice given to participants, only for the person they put in front of their employees.

Two specific areas that plan sponsors should benchmark, according to Reish, are reasonableness of fees and results of the advice. Look at the big picture, he advised – “are the people who scored themselves as conservative [investors] more in bonds and are those who are aggressive [investors] more in equities than bonds?’

Reish also noted that he think sponsors should ask advisers more than just their qualifications. Advisers should give plan sponsors tools to help the sponsor monitor the adviser’s services – and sponsors shouldn’t be afraid to ask the adviser how he will do this – and advisers should be prepared to answer those questions.

FAB 2007-1 from the DOL offers a road map to selecting a fiduciary adviser. If the goal is for sponsors to minimize fiduciary liability regarding participant investing, having a fiduciary adviser, if properly selected, is a way to do that, McDonagh commented.

Compliance July 8, 2007

Plan Fee Lawsuits to Bring Change

Although plan fees might not be excessive, advisers and plan sponsors should consider whether they can be less.
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So said Jennifer Marconi Flodin, COO of Plan Sponsor Advisors, speaking at PLANSPONSOR’s Plan Designs conference; the question isn’t necessarily whether the fees are too high, but whether the sponsor could have been paying less, she said.

“The spotlight more than ever before is on the plan sponsor and investment adviser,’ Nancy Ross, an attorney with the firm McDermott, Will & Emery, told the audience. In light of the spate of lawsuits filed by the firm of Schlichter, Bogard & Denton challenging fees in 401(k) plans, as well as the recent attention to fees in Washington in Congress and the Department of Labor, “more than ever before, you guys are under the spotlight,’ Ross commented.

It is not only about how much was paid in fees on a particular plan, but rather whether the plan tried to lower their expenses. In fact, according to Jeb Graham of CAPTRUST Advisors, “The fees really aren’t that high.’ Instead, he said, ’the issue is going to shift to where the issue is not the fees but that the oversight is lax.’

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Moving forward, Thomas Pittman, Chief Marketing Officer, The Newport Group, changes will be seen across all fronts: plan sponsor, provider, and adviser. These cases have blown the fee discussion seriously out of proportion. Regulatory bodies are putting themselves into a position to make new discussions about disclosure, and even before that, an increases awareness is being seen, in things such as requests for proposals (RFP), which Pittman said now routinely ask about issues such as revenue sharing arrangements.

Ross, whose firm represents one of the firms sued by the Schlichter firm, said the lawsuits are focusing on revenue sharing, a focus that can be unsettling, because there is nothing inherently illeagal about revenue sharing. However, she said the lawsuits and increased attention in Washington have led plan sponsors to ensure plan fees are properly understood. Ross said that her firm has seen a significant increase in the number of companies looking for McDermott, Will & Emery to help with a plan fee audit.

Flodin agreed that sponsors should ask questions of plan providers, saying that advisers should get their clients to insist that providers acknowledge all direct and indirect revenue streams involved with the sponsor’s plan, she said.

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