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.

Reported by

Alison Cooke

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.

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.