When selecting a suit, there are choices to be made: single or double-breasted; slim, classic or athletic fit; notch or peak lapels; center vent, side vents or no vent, to name a few. Making the right choices can be the difference between being confident or feeling unsure.
It’s the same with fiduciary protection services for clients who sponsor retirement savings plans. There are different levels of services and options. Ensuring the right fit can make all the difference in the amount of protection, confidence and flexibility afforded to the plan sponsor.
Retirement plan providers are introducing fiduciary support services with more options and choices, enhancing support and offering different levels of protection and risk management. But what makes sense for any one sponsor can vary and advisors can provide a valuable service by acting as a tailor to find the right plan to suit their clients’ needs.
Whether sponsors select a fiduciary service or shoulder the obligations on their own, ERISA section 404(c) offers plans and plan fiduciaries some protection from fallout from investment decisions. To qualify for 404(c) protection, plans must meet specific requirements, including, but not limited to:
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Offering a broad range of investment options. A broad range is defined as at least three diversified core investment categories with different risk-reward characteristics from each other, and the options when combined must offer diversification for a participant’s overall portfolio.
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Allowing participants the ability to become informed about and to direct their investments.
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Providing certain information and disclosures automatically and upon request.
There are other requirements as well, and plan sponsors are urged to work closely with their legal advisors and third party administrators to ensure they take the appropriate steps to keep their plans 404(c) compliant. Yet, plan sponsors may still feel the need to obtain additional protection. Financial advisors can help by reviewing and evaluating available fiduciary investment services.
There are several firms that provide such services, typically third-party advisory firms that shoulder different levels of fiduciary responsibilities providing the sponsor selects investment funds from a pre-screened list. The level of risk protection rises or falls with the level of choice and discretion the sponsor elects to retain over the investment choices.
Choosing the right fiduciary service may help reduce a sponsor’s risk, protect plan participants and ensure that the plan is being maintained in compliance with ERISA and other applicable laws. ERISA has set high standards on the roles and actions of fiduciaries, and when a fiduciary does not meet his or her duties of loyalty, prudence, diversification and adherence, it can result in steep consequences.