Financial Opinion and Insights

10 Questions Plan Sponsors Should Ask Themselves

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Do you make decisions regarding your company’s retirement plan?  For example, do you choose the plan provider or approve the investment line-up?  Did you choose your plan’s advisor or broker?

If you make decisions regarding your company’s retirement plan – it doesn’t matter what your company title is, you could be the janitor – the odds are excellent you could be considered a fiduciary by the Department of Labor. 

Under ERISA (Employee Retirement and Income Security Act), fiduciaries are charged with the selection and monitoring of plan service providers.  ERISA requires that fiduciaries act in the same way a prudent expert would act, solely in the interest of plan participants and beneficiaries.  In fact, fiduciaries must act for the exclusive purpose of providing benefits and defraying reasonable expenses in administering the plan.    But, how are plan sponsors to act at the level of experts in administering a plan?  According to many vendor salespeople, you simply `delegate’ it and they’ll `take care of everything’. 

It doesn’t work that way in the real world.  Plan sponsors are charged with documenting their service provider selection process, documenting the monitoring of their service providers, and checking for conflicts of interest!

Here are 10 Questions plan fiduciaries should ask themselves:

  1. Does everyone who makes decisions about your retirement plan know s/he has fiduciary status?  Are they aware of the implications of that status?
  2. Did your provider `bundle’ your plan so that you pay one all inclusive fee?  Have you uncovered a line-item breakdown of all charges paid for record-keeping, administration, investment management, employee education, and your advisor’s fee?
  3. Do you know what revenue-sharing is and if it exists in your plan?  Have you uncovered and documented all revenue-sharing arrangements?  (Note:  If your plan looks `free’, it’s an excellent bet there is revenue sharing going on behind the scenes.  Have you uncovered it and have all excess payments to providers been returned to the plan and/or participant
  4. Have you actually read your provider’s Service Agreement.  Do they really take fiduciary status or is it simply a marketing gimmick?  Look to see if they render advice or only make recommendations. 
  5. What kind of independent “third party” investment due-diligence do you receive?   Are the investments chosen from a limited menu or an `open architecture’.   Note:  If most are from a single fund family, with only a few other families represented, chances are there might be a `pay-to-play’ arrangement resulting in revenue sharing to other service providers (see #3).  This often results in higher investment expenses, which might create some headaches for a fiduciary; remember, you must act ‘solely’ in the best interest of participants and `exclusively’ to provide retirement benefits at reasonable cost.
  6. How were your investments chosen?  Were they chosen because they paid higher revenue sharing (see #3 and 5) and can you document the selection process?
  7. When was the last time funds were replaced?  Can you document why they were replaced?  If none were replaced, can you document why they were retained and other candidates weren’t chosen?
  8. How often do you hold educational meetings for your employees?  Are they getting real financial planning and investment advice – something that can actually reduce your liability – or are they simply going through enrollment meetings and/or being provided with only `information’  and left on their own?  (Hint:  What do YOU think a fiduciary should do?)
  9. Do all fiduciaries to your plan have a real internal process with systems for documenting all activities and fulfilling all their duties or are they simply trusting the plan provider, who in the vast majority of cases – particularly if the plan was sold by a broker, insurance company, or a mutual fund complex – is not acting in a fiduciary capacity.  
  10. Do you have a written provider search process you can follow and document when plan review time rolls around? 

Doing it right isn’t that hard; and in many cases can even save you money!  Doing it right always saves headaches.



NOTE:  Jim Lorenzen was interviewed by The Wall Street Journal’s Glenn Ruffenach for an article appearing in SmartMoney magazine.  You’ll find it on page 46 in the September 2011 issue now on newstands.


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary®  in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.