Top Compliance and Litigation Tips for 401(k) Plans
Sometimes, in an effort to distinguish themselves, retirement plan advisors get too esoteric and complicated. ESG funds, managed accounts, pooled employer plans, health savings accounts and retirement income can and will be important to plan sponsors but just helping them to stay in compliance and avoiding litigation traps are and will continue to be top of mind ahead of other issues.
At recent TPSU programs, two attorneys presented on compliance and litigation. One, Jodi Green, partner at Tatum, Hillman & Powell, LLP and a former Department of Labor examiner, reviewed the “Top 10 Compliance Traps” while Carl Engstrom, partner at Engstrom Lee, who has brought multiple lawsuits, shared their insights. The plan sponsors were riveted at both.
Compliance
Jodi shared a top 10 list of compliance traps which included:
Though many traps are obvious to industry professionals, they are not to plan sponsors who will appreciate not only being reminded of them but getting additional education and updates.
Litigation
Fred Reish, partner at Faegre Drinker Biddle & Reath LLP, reviewed litigation tips at the May TRAU C(k)P training on the UCLA campus, but is industry friendly mostly representing defendants in ERISA lawsuits. Over a month later at a TPSU program at UCLA, prolific plaintiff’s attorney Carl Engstrom shared his insights, which also had plan sponsors riveted:
- Process
- Plaintiffs have the advantage as they present the facts most favorable to them, which are assumed to be true when defendants file a motion to dismiss in order to avoid costly discovery;
- Fee disclosure and 5500 forms are the biggest source of litigation
- Common claims
- Record keeping costs especially using revenue sharing
- Share class optimization or lack thereof (Engstrom mentioned the failure to use CITs or SMAs though Reish said that a case could be made to pay more for mutual funds)
- Underperformance of funds especially target date funds lately
- Other
- Managed account fees
- Self-dealing—proprietary funds of the provider or consultant/advisor
- Failure to use stable value vs. money market accounts
Beyond the obvious (do a good job), Engstrom recommended that plans go to market every three-to-five years with an RFP and be cautious about who is benchmarking the plan because it can be easily manipulated by the pool of plans used.
The demand by plan sponsors for high quality education on the basics of running a plan has never been higher and though ESG, PEPs and managed accounts are sexy right now, do not forget the basics. And those that are seen as educators, along with conflict-free fiduciaries, will be trusted more than salespeople.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
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Originally posted on: https://www.wealthmanagement.com/rpa-edge/top-compliance-and-litigation-tips-401k-plans