PANC 2017: Helping Your Clients With Governance

Having structured processes in place is key.

At the 2017 PLANADVISER National Conference, experts on the “Helping Your Clients With Governance” panel discussed the impetus behind litigation against retirement plans, and the reasons why the Department of Labor (DOL) conducts plan audits. Certainly, the majority of the lawsuits being filed against plans relate to fees—particularly revenue sharing fees, said Phil Senderowitz, managing director of Strategic Retirement Partners.

With respect to revenue sharing, Joe Connell, a partner with Sikich Retirement Plan Services, said the courts and the DOL are both scrutinizing how revenue sharing fees are paid and shared among participants. For example, if participants in an actively managed fund pay revenue sharing fees, but the same employer’s participants in passively managed index funds pay none, advisers and the retirement plan committee need to discuss this, lay forth justification for the disparity and document the decision, both Connell and Senderowitz said.

“Even if the plan sponsor client decides to keep the revenue-sharing fees, as long as it discusses [the decision] and documents that it had a rational thought process for keeping them, it will be fine,” Senderowitz said.

“Some plan sponsors are moving to all-index fund lineups, but I think that is dangerous,” he continued. “There is no downside to having a diversified lineup.”

Connell said he has guided clients through four DOL audits in the past two years, and what he has discovered is that DOL agents are not investment professionals. Rather, they are “concerned with processes,” Connell said.

Senderowitz agreed, noting that documentation and adherence to the plan document, which should be thorough, are both key. For example, if an employee wants his bonus withheld, the plan document should address that scenario, he said.

Even though it is not required by the DOL, having an investment policy statement (IPS) “that covers your definition of compensation and eligibility” is also a good guardrail against litigation and audits, Connell said. However, he cautioned, if a plan has one, it needs to abide by it and continually monitor it in quarterly reviews.

Senderowitz agreed that following an IPS is crucial. “If your plan sponsor client is audited by the DOL or faces a lawsuit, it will face different levels of scrutiny. The DOL is checking boxes.”

NEXT: The most common errors

Another area where advisers can help plan sponsor clients stave off governance and litigation risks is by “benchmarking provider fees by conducting requests for information [RFIs] every two to three years to ensure the fees are competitive,” Connell said.

With regard to the most common governance mistakes plan sponsors make, Connell has found that many committees fail to take minutes or to realize that, if their plan has more than 100 participants, it is subject to auditing. This is why Sikich Retirement Plan Services “creates a fiduciary vault for every client that includes the minutes and that documents the history of the relationship,” Connell said.

Mistakes that Senderowitz has found include “small clients not paying attention to terminated employees. They need to get rid of those balances,” he advised.

As to resources that advisers can provide to their plan sponsor clients and plan committees, these abound, Connell said. Recently, the DOL has recently been holding five to six day-long Meeting Your Fiduciary Responsibility workshops around the country, each year. Offered for free, he said, the workshops concentrate primarily on fees and equip participants with a certificate for  attending. In addition, the DOL has a booklet, “Meeting Your Fiduciary Responsibilities,” which Connell makes sure he gets into the hands of each of his plan committee members—then has them sign an acknowledgement saying they understand the concepts it lays forth.

“In addition, defined contribution investment only [DCIO] managers, such as Thornburg Investment Management, have many client-ready tools and resources,” Connell said. “Some of these are six- to eight-minute BrainShark-style videos that are easy to use and [that] provide participants with a certificate. In addition, Fi360 has a fiduciary training course that costs $200 a person.”

To this point, Strategic Retirement Partners has developed a course in partnership with Wagner Law Group. These six- to eight-minute videos are followed by a quiz that participants need to pass, Senderowitz said.

Further, advisers “need to have a discussion with the plan sponsor clients about cybersecurity,” Connell said. “The DOL has not issued a policy on this, but The SPARK Institute has guidelines available on its website.”

The bottom line, Connell said, is that the DOL “really wants to see that plan sponsors have a culture of compliance, that they are looking out for the best interests of the participants. You need to educate plan sponsors that their providers are not fiduciaries to the plan—they are.”