At the writing of this post, business owners have exactly 41 days to comply with new ERISA guidelines. Every company with a 401k will face new rules and penalties regarding how information is disclosed and processed. Not fully complying with these regulations, enforced by the Department of Labor, can result in prohibited transactions and fines.
Purpose and Potential Issues
The rationale behind the changes to the law are well intended as for many years business owners and plan sponsors have lacked the information necessary to make informed decisions concerning the retirement plan. The Department of Labor has been concerned for a number of years over the hidden nature of much of the cost that exists in the retirement marketplace. That said, the changes in the law present a new set of challenges for the business owner that many are ill-equipped to handle. Companies have for many years been required to have a plan in place whereby all aspects of the retirement plan are regularly scrutinized such as cost or value received from providers. But these and the new additions to the law presuppose a level of expertise that is commonly not found outside of investment professionals. For example, business owners are to be educated or familiar enough with investments such as mutual funds that they are fully able to select funds suitable for an investment line-up or be able to with a certain degree of precision build a portfolio that is risk averse while at the same time provide an adequate return. To make matters worse, business owners are not only expected to be able to analyze information concerning the plan, they are legally held responsible for breaches in fiduciary duty that would include not performing their duties to the plan and participants but also knowingly or unknowingly entering into an agreement with a service provider that does not adequately disclose pertinent information to the plan sponsor.
New changes to the law come in two separate regulations:
ERISA 408(b)-2: This regulation will mandate that all plan service providers must provide critical disclosures to plan fiduciaries. Service providers could include services such as investment advisors, recordkeeping, brokerages, and accountants that receive compensation from the plan. All service providers receiving compensation must disclose by July 1st, 2012, items such as:
• Description of service.
• Compensation received directly or indirectly.
• How compensation is received whether paid directly from assets or as a flat fee.
• Fiduciary status.
ERISA 404(a)-5: This regulation requires all plan fiduciaries who offer participant directed accounts (a majority of 401(k)s), provide participants by August 1st, 2012, with plan and investment-related information including:
• A listing of all investment options in the plan.
• How often investments may be changed as well as how changes are made.
• A listing and explanation of all administrative fees and expenses charged.
Government regulation and economic conditions have changed dramatically over the past few years and achieving your financial goals is more difficult than ever. Since 1992, Money Management Services has provided fee-only and fiduciary services to individuals and businesses alike. Money Management Services can assist you company with:
• 401(k) Fiduciary Management to mitigate your plan sponsor liability.
• Transparent, fee-only advisory services.
• Assisting with upcoming disclosures.
• Benchmarking Services
If you’re a business owner or plan sponsor and are concerned with possible liability or would like more information concerning how your retirement plan compares to thousands of other plans we stand ready to serve you.
Audrea attended the University of Alabama in Tuscaloosa, where she majored in one of the first approved financial planning programs taught at the University level. In 1998 Audrea graduated from The University of Alabama in Tuscaloosa with a Bachelor of Science degree in Family Consumer Sciences & Financial Planning. Audrea has over 19 years of experience as a Financial Advisor with Money Management Services. She holds the designations of AIF® (Accredited Investment Fiduciary), CRPS (Chartered Retirement Plan Specialist) & CES™ (Certified Estate and Trust Specialist). As an advisor, Audrea specialized in comprehensive financial planning, estate tax planning, personal taxation planning, retirement income distribution planning, wealth accumulation, personalized portfolio management, and fiduciary investment management services.