Frequently Asked Questions
The Institute does not serve as the “Named Fiduciary”, but it may be named in the plan documents as the Plan Administrator. The “Named Fiduciary” is either a person or the business named in the plan documents as the primary responsible party or party’s for all aspects of the plan. The Institute doesn’t need this level of authority to to fulfill its role as an Alternative Professional Plan Sponsor Solution. There is no benefit to the plan or participants and beneficiaries for the Institute to be the “Named Fiduciary” in the plan document and may be a detriment for the following reasons.
- If the Named Fiduciary role is not properly defined, an outside fiduciary could go unchecked because it is the ultimate authority, potentially resulting in the mismanagement or intentional abuse of plan assets. Without naming names there is a well publicized case where an independent “Named Fiduciary” went rouge, taking advantage of its authority, using plan assets for its own personal benefit.
- Maintaining the documents is an expense born by the plan sponsor. There is typically an additional expense each time a name is added or removed from the Plan document.
- There is the additional expense for providing participants with a copy of a new Summary of Material Modifications.
- Keeping the “Named Fiduciary in the corporate form can provide certain protection from personal liability, but that corporate structure must be in place, in operation and maintained. Moreover, the Named Fiduciary can appoint others to provide various levels of support, both fiduciary and non-fiduciary in nature.
- There is also the possibility that adding an independent fiduciary as a “Named Fiduciary” could change a prototype document into a custom document, adding additional expense to maintain the plan.
Yes it does. The Institute has a program specifically designed to serve as a compliance solution that serves to keep Advisors from ever becoming a Fiduciary.
No, the Institute does not hire on as a Trustee. Some independent fiduciary service providers sign on as a Named Fiduciary to become the de facto Trustee. This circumvents the registration requirements to be a discretionary investment manager under ERISA section 3(38). This could be problematic if the plan sponsor or independent service provider is not aware of any special requirements required by the plan sponsors state for anyone that serves as an independent trustee. For example some state(s) require an independent trustee to be licensed as a Trust Company.
There are two exceptions to the general rule that the plan Trustee has exclusive authority and discretion over the management and control of plan assets.
(1) where the trustee is a “directed trustee” – meaning the trustee acts on the direction of a Named Fiduciary that has discretionary authority over the disposition or management of the plan assets;
(2) where the Named Fiduciary (usually the plan sponsor or plan committee) delegates the management of plan assets to one or more investment managers.
Our arrangement falls under exception # 2.
No. It is not required by law. The IPS is a dual edge sword. On the one hand it can be an effective tool to help those responsible for investment selection to define their goals and objectives and stay on point with respect to the plan’s investments. On the other hand if the IPS is too strictly written, the investments won’t have the flexibility to withstand short-term periods of above normal volatility or under performance. A good investment may for a period of time fall outside the parameters as defined by the IPS. This may require the committee to make changes more frequently, requiring good funds to be changed unnecessarily. Failing to follow the IPS could result in a fiduciary breach. With that being said the more that is put in writing the more it can be held against you. Thoroughly documenting your investment selection process over time is equally and maybe more effective towards reducing your fiduciary liability.
If the CSP is serving in a fiduciary capacity or it is believed that they are providing advice that may make them a functional fiduciary then they should be required to maintain a fiduciary liability insurance policy. The Retirement Readiness Institute carries its own fidelity bond and fiduciary liability insurance policy.
Do Plan Sponsors need to be concerned with testing employee after-tax
contributions in a safe harbor 401(k) plan?
Yes, despite the safe harbor design, the after-tax contributions are still subject to the actual contribution percentage (ACP) test.
If a plan, such as a 401(k) plan, provides for salary reductions from employees’ paychecks for contribution to the plan, then the employer must deposit the contributions in a timely manner. Published 1/14/2010 the DOL published a final rule to protect employee contributions deposited to retirement and health plans with fewer than 100 participants by providing a safe harbor period of (7) business days following receipt or withholding by employers.
The law provides a definition of what is timely. It requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. However, it is very important to note, that if employers can reasonably make the deposits sooner, they are required to do so.
More and more employers are offering participants help with making informed investment decisions. This may or may not be a fiduciary function, depending on the type of information provided.
Employers may decide to hire an investment adviser to offer investment advice tailored to individual participants. These advisers are fiduciaries and have a responsibility to the plan.
A word of caution, an advisor not properly contracted to provide investment advice yet meets with participants as an added value, providing investment advice specific to the participant’s 401(k) account, may be acting in a functional fiduciary capacity, unknowingly creating responsibilities and risks for the plan sponsor.
However, if an employer or service provider provides financial and investment education that is general in nature, it is not acting as a fiduciary. This may include interactive investment materials or information based on asset allocation models. But a word of caution, any services, materials or interactive technology relating to non-plan related topics, paid directly or indirectly out of plan assets could be problematic i.e. personal finance videos, information or education.
The decision to select an investment advisor or service provider offering investment education is a fiduciary act and must be carried out in the same manner as hiring any other plan service provider.