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What are some of the major issues affecting retirement plans today?

Retirement plans today can be saddled with high fees, hidden or not. Not only that, but when it comes to revenue sharing with with multiple Record Keepers in some cases, this can drive up the costs plan sponsors and participants incur. From a legal and administration standpoint, there is often a lot of confusion when it comes to fiduciary requirements and even who is a fiduciary. Another major issue is low employee participation. This can result from a lack of educational services and informational products.

Retirement plans administered by third-party advisors can alleviate these issues, resulting in a more efficient and cost-effective retirement plan.

What are the key benefits of working with a third-party investment expert?

There are significant benefits to working with a third-party investment advisor like Shuster. Not only will they reduce your liability as a plan sponsor, but there are no conflicts of interest that you might experience when working with a record keeper. Furthermore, a third-party firm can provide comprehensive, cost-efficient fund menus, investment reviews and watchlist/replacement procedures. They also deliver valuable investment education services and policy statements. All of these can streamline your responsibilities as a plan sponsor.

What is the difference between a fiduciary and a non-fiduciary when it comes to a retirement plan?

There are two kinds of fiduciaries, “Named” and “Functional.” Named fiduciaries are individuals/entities specifically named as the plan’s fiduciary in the plan document. Functional fiduciaries, on the other hand, are individuals/entities who acquire fiduciary status through their role. This could include trustees, investment managers, CEOs, CFOs, HR directors or others. It also includes anyone with discretionary authority or control over plan management, plan administration or the disposition of plan assets. Finally, anyone who offers investment advice for a fee with respect to plan assets is considered a functional fiduciary.

You are not a fiduciary if you do not have discretion or control over a plan. This could include those performing legal, accounting or actuarial roles within an organization. Furthermore, those who solely perform “ministerial” functions within or conduct settlor activities are not fiduciaries.

What services should my firm be looking for when it comes to fiduciary education?

Once you’ve selected plan fiduciaries, it’s critical to educate them on their responsibilities as well as any potential liabilities they may face. This can be accomplished through online or in-person education. But the job of the fiduciary does not end with initial training. As rules and regulations change, it’s equally important that fiduciaries continue to educate themselves. This will help reduce liability and can help increase plan participation.

How does employee communication benefit the overall plan?

Communication is a key element in driving participation of a retirement plan. It can increase participation by educating employees on the value of saving for retirement as well as the risks of not doing so. For participants, it’s helpful in understanding their risk tolerance and how to determine their retirement goals. Communications can also help shape perceptions of the employer by demonstrating ways in which they value their employees.

What are the differences between an actively-managed and a passively-managed fund?

An actively-managed fund features a fund manager looking to outpace the market or sector by leveraging research, analytics, forecasting and his/her own expertise. The manager of a passively-managed fund has a limited role in the managing the fund. Because of this, actively-managed funds generally have higher fees and expenses than passively managed funds.

What types of fiduciaries are there?

There are three types of fiduciaries, a 3(16), a 3(21) and a 3(38). The difference between each of these is significant:

  • A 3(16) is the “Plan Administrator” who provides plan document maintenance and interpretation. They also provide participant management and reporting services.
  • A 3(21) provides non-discretionary investment advice to plan sponsors and/or participants. They also assist in drafting investment policy statements, prepare investment advisory reports and are co-fiduciaries for fund line-ups and monitoring activities.
  • A 3(38) provides discretionary investment management services to plan sponsors and/or participants. They also draft investment policy statements, prepare investment advisory reports and are fiduciaries for fund line-ups and monitoring activities.

How does hiring an outside advisor impact my status as a fiduciary?

A named fiduciaries can delegate fiduciary responsibilities to outside advisors who are functional fiduciaries, however this does not release the trustee from all fiduciary responsibility and liability.