by Craig D. Price, Certified Financial Planner® and Will Thompson, Certified Financial Planner®, Certified Financial Advisor®, Accredited Investment Fiduciary® – Stuart, Florida

Lawsuits against 401(k) plan sponsors are surging and potential damages are in the hundreds of millions.1 The suits allege 401(k) plan trustees failed their fiduciary duty by allowing “high-fee or poorly performing investments” todiagnostic review of your 401(k) remain in their company retirement plans, causing plan participants substantial financial harm. The message from the spike in suits is a sober reminder: as a plan trustee, you are a fiduciary subject to corporate and personal liability.
In April, 2016, the Department of Labor issued a new fiduciary rule which substantially broadens the responsibilities of 401(k) plan fiduciaries. Because the 1,023-page rule is complex, plan sponsors are just beginning to grasp how the it broadens their obligations. Kristin Zanotti, a Washington, D.C. ERISA lawyer, put the new rule into perspective when she wrote, “(By) changing the definition of who is a ‘fiduciary’ under ERISA, ERISA experienced one of the most significant changes in its history.”2
Marcia Wagner, principal at The Wagner Law Group, commenting on the rising trend in 401(k) lawsuits, said, “There’s no end in sight for excessive-fee litigation, and the extent to which such lawsuits will upend the retirement industry is unknown.”3.

What Does The New Rule Mean For Employers With 401(k) Plans?
Before the fiduciary rule was issued, 401(k) plan decision-makers often retained brokers, agents, or other financial professionals to recommend investments for the plans. The investment advice providers were not fiduciaries in many cases, and they were not required to act in the best interest of the 401(k) plan participants. Consequently, high fees proliferated. The impact of excessive retirement plan fees is $17 billion annually, according to Department of Labor estimates The new rule redefines record-keepers, third party administrators (TPAs), and investment professionals as legal fiduciaries, except where specific exemptions are obtained. As a result, retirement plan decision-makers must now verify that professionals servicing their 401(k) are acting solely in the best interest of the plan participants.

What Should Employers Do Now?
To protect themselves, plan trustees should conduct a diagnostic review of their 401(k) plan using a thorough Fiduciary Checklist.

This approach examines the primary components of your fiduciary responsibility:401(k) failures and risks

  • Plan Documents and Service Agreements
  • Administration, Corporate Resolutions, Meeting Minutes
  • Record-keeping, Investment Advisor, Mutual Funds, TPAs
  • Employee Communication, Frequency, Transparency
    • Fee Analysis and Benchmarking
    • Conflict of Interest Review

Many 401(k) plans have deficiencies which need to be addressed. Changing 401(k) providers is an effective way to more closely align retirement plans with the new fiduciary rule. Expert consulting firm, A.T. Kearney, predicts by 2020 that plan sponsors will move over $500 billion away from traditional 401(k) providers like insurance companies and brokerage firms to registered investment advisory firms who already operate as fiduciaries under the law.4

Spread Your Fiduciary Risk
Employers can mitigate their risk by engaging retirement plan investment advisors, record-keepers and TPA firms that accept fiduciary risk themselves. Currently, some 401(k) plan advisors specifically avoid accepting fiduciary responsibility because they are brokers who earn commissions. Such advisors are conflicted under the new rule if they earn variable compensation depending on how employees invest within a plan. However, under the new rule, employers can share their potential liability by hiring qualified professionals who accept in writing their role as either 3(16), 3(21) or 3(38) fiduciaries.
The new rule is a historic challenge that plan trustees cannot afford to ignore. The DOL will start enforcing the rule starting in April, 2017, so plan sponsors have a short window to prepare. It is wise to begin now and engage professionals who are committed to helping your company adapt to the new standard.



At Price Wealth Management, we are fiduciaries for retirement plans and IRAs. We assist 401(k) plan trustees as level fee advisors. Our services include expense analysis, investment monitoring, risk management, investment policy statements, and plan due diligence. Collaborating with independent record-keepers and third party administrators, we arrange for compliance testing, on-site employee education, and access to web-based planning tools. Our advice is product neutral, conflict-free, and compliant with the new fiduciary rule. As board-certified financial professionals, we embrace the role of fiduciary for retirement plan and IRA clients. For a free consultation or cost analysis of your particular retirement plan or IRA, contact us directly at 772-888-3735.

1 Tergesen, Anne “401(k) Fees, Already Low, Are Heading Lower.” Wall Street Journal 15 May 2016
2 Zanotti, Kristina M. “The new DOL Fiduciary Rule: What it means for RIAs”
3 Iacurci, Greg “Edward Jones faces class action lawsuit over excessive 401(k) fees.” Investment News 22 Aug 2016
4 Hedges, Bob “The $20 billion impact of the new fiduciary rule on the U.S. wealth management industry.” Aug 2016

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