Remember the old TV commercial that stated ‘no two aspirins are alike’. While for some that’s still a debatable issue, there is no debate when it comes to corporate retirement plans. They’re simply not all the same. So before any plan is decided upon, it’s essential to ascertain a few facts about the potential provider.
The first thing you need to find out is whether a plan provider offers open architecture. In other words, the provider you choose should place no requirements on funds. The least desirable plans will force you to use their own funds. More often, you’ll have to employ funds that provide a certain amount of revenue sharing. This isn’t necessarily a negative; some of the best funds will involve revenue sharing as a means to defray costs. Many of these will even reimburse it. “The best retirement plan providers will go one step further,” states Peter Macaluso, Vice President of FM International Services (NY), Ltd., one of America’s most respected retirement plan providers. “These firms will also show you the precise amount of the revenue sharing, and allow fiduciaries to choose the most appropriate funds for a particular client.”
The next most important element to consider is a “fiduciary guarantee”, and the fact that there is no such thing. “Anyone claiming they can guarantee your fiduciary duties does not understand what your fiduciary duties are,” explains Macaluso.
The truth is, every plan sponsor — in most cases, the employer — has a fiduciary duty that cannot be abrogated. It’s clearly stated
in the fine print of guarantees and warranties that, while the company behind the promise will assist in any lawsuits brought against the plan sponsor, assistance is all they’ll offer. They cannot completely remove the plan sponsor from liability.
“The best providers offer the assistance of a 3(38) fiduciary,” says Macaluso. “While this does several things to mitigate a plan sponsor’s liability, it more importantly sets up and follows through on an investment selection and monitoring process. According to Macaluso, a fiduciary’s greatest concern is that in some way an employee will be viewed as being treated unfairly in the eyes of the Department of Labor. In terms of investments, a properly followed and maintained policy statement is primarily what’s needed to defend against lawsuits initiated due to the investments in a plan. While it’s true no one can definitively state the ‘best’ investment without debate, as long as the fiduciaries follow the process and act prudently — and most importantly, in the best interest of the participants, most often employees — it will be difficult for anyone to find them at fault.
Two other critical components are also endemic to the ‘cream’ of the retirement provider ‘crop’: flexibility and features. A quality provider genuinely welcomes working with other retirement professionals, among them actuaries, consultants, investment specialists, 3(38) and 3(21) fiduciaries, enrolled retirement plan agents, third-party administrators, and ERISA attorneys. The ability of a provider to do business with professionals like these makes it obvious which interests they truly put first.
Next, do your homework. Virtually any provider can offer basic services, yet may not be able to deliver what a specific company needs. When changing to a new provider, never assume previous features will simply continue as usual. Every company must identify those features that are absolutely necessary, and the ones that are desired. “It’s also very important to point out what you were not satisfied with from your old provider,” adds Macaluso. “While many offer several features, the majority are rigid in their offerings. If you don’t fit into their model, too bad for you. A good provider works with you to ensure both your needs and wants are met, not merely their image of what those may be.”
Finally, Mr. Macaluso offers the simplest, yet often most effective method for selecting a retirement plan provider: common sense. “When you receive a doctor’s prognosis, what’s the smartest next step? Get a second opinion. It’s the same in this situation. Just as in any profession, there are excellent and not-so-excellent retirement plan providers. If you don’t like what you hear from one, look elsewhere.”
Tags: 3(38) fiduciary, fiduciary guarantee, liability, Open Architecture, plan sponsor, Provider, Retirement Plans, retirement provider