Common Fiduciary Challenges – Part 2

Mountain Pine Trees_20091020
Mountain Pine Trees_20091020

This article is the second in our Common Fiduciary Challenges series.  As a financial advisor who consults regularly with pension clients working with my firm's retirement plan unit, there are some common issues that arise when consulting with a new client.  This series is designed to highlight some of these more frequently identified issues.  It is not intended to be an all inclusive list of items that should be addressed by an investment fiduciary of a qualified retirement plan.  For a more detailed questionnaire related to pension investment fiduciary matters follow this link.  This questionnaire is designed to help plan sponsors determine whether they should conduct a more thorough review of their retirement plan administration and fiduciary monitoring processes. Retirement plan fiduciaries not periodically reviewing the cost associated with their qualified retirement plan

It has always been important for retirement plan sponsors to pay close attention to the cost associated with servicing and administering their qualified retirement plans.  Plan sponsors should periodically survey the marketplace to make certain that the fees that the plan is paying for various services are still competitive.  Many times, a plan sponsor will carefully compare fees when the plan is initially established but will not include fees and other plan level costs as part of their ongoing monitoring process.

For example, overall plan assets will typically increase over time due to both participant and employer contributions as well as market performance.  Many times when plan assets increase, so does buying power.  Consequently, there may be options available to reduce the net cost of servicing the plan.

Another reason that plan sponsors should carefully monitor fees and expenses is that in the very near future, thanks to actions taken by legislative bodies and regulators, plan sponsors may be required to publicly disclose all fees paid to all service providers.  With this increased level of transparency across the entire retirement plan space, participants will be in a better position to challenge the fees associated with servicing their employer’s retirement plan.  In many cases, these fees related to servicing a retirement plan have a direct impact on a participant's returns.

The fees that should be examined by the plan sponsor on a periodic basis include fees associated with the product provider such as the fees for mutual funds included as investment options in the plan, investment advisory fees assessed by an investment consultant associated with the plan, fees charged by the plan's record-keeping firm as well as retirement plan’s administrative firm and perhaps other service providers such as plan custodians.  Generally, plan sponsors should determine if the fees assessed are reasonable and appropriate.

Retirement plan fiduciaries not being clearly identified and briefed on their responsibility and liability

Another common fiduciary challenge, and perhaps the most frequent issue that I encounter, is plan level fiduciaries not being clearly identified within the sponsoring organization and those same fiduciaries not being fully briefed on both their responsibility and their liability.  Frankly, this particular issue should have been one of the first common fiduciary challenges that I referenced in this series.  If those individuals who are considered fiduciaries in an organization sponsoring a retirement plan are not aware that they are responsible parties, they will be less likely to address some of the other challenges referenced in this series of articles.

Generally complacent attitude relative to retirement plan monitoring and administration

Small business people are exceedingly busy individuals with many demands on both their time and their attention.  Demands on an organization's leadership have increased significantly in recent years as the pace of business has quickened due to advances in technology.  Further, leaders in all types of organizations including for-profit companies, municipalities and nonprofit organizations are under tremendous stress due to the need to respond to the recent economic downturn.  Consequently, the responsibilities related to employee benefit packages such as qualified retirement plans can easily be pushed to the back burner.

Regrettably, this responsibility and liability associated with servicing a qualified retirement plan is not relieved because plan sponsors are otherwise occupied with the demands of clients, customers, employees and suppliers.  Due to increased transparency requirements imposed by legislators and regulators coupled with increased participant scrutiny of plan investments and expenses, retirement plan administration must be moved up on a decision maker’s priority list.


In this series we have discussed a number of common future challenges faced by sponsors of qualified retirement plans.  Although considering these issues may at first seem overwhelming for an otherwise busy leader in business or nonprofit, having a sound process can make addressing these matters much easier.

For your reference we have built an online quiz that a plan sponsor can take to provide them with a simple assessment of their overall fiduciary monitoring process.  The link to this online questionnaire can be found here and can be taken in about five minutes.  We have also added a sample Investment Policy Statement and sample investment due diligence created based on that investment policy for your review.

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Dean Piccirillo offers insurance products through HBK Sorce Insurance LLC. Investment advisory services are offered through HBK Sorce Advisory LLC d/b/a HBKS Wealth Advisors. Mr. Piccirillo is not able to transact business in a state that he is not licensed or registered.