PSNC 2013: Duty Bound

1.      Fiduciary Redefinition: When? Where? What? Why? The real impact on plan sponsors. 

David N. Levine, Principal, Groom Law Group Chartered said there is a 50% chance the Department of Labor’s (DOL’s) redefinition of fiduciaries will be issued by the end of the year. The big thing fiduciaries need to focus on is process, documenting those processes, and following plan documents. He said plan sponsors should document everything, keeping in mind that everything written can be used in court. Always use “may” in documentation never “shall,” Levine suggested. Plan sponsors don’t want to be locked into anything.

James Fleckner, Partner, Goodwin Procter, added that the court views plan sponsors as fiduciaries who work in the best interests of the participants. Courts are very skeptical about fiduciaries that also have corporate responsibilities. It needs to be clear that fiduciaries are still looking toward the best interests of the participants.

When a fiduciary wears different hats, document the statements made in these different roles separately in communications, Levine said.

2. Target Date Fee Disclosure:  What does the DOL fact sheet really mean?  

Levine pointed out to attendees that the DOL fact sheet about target-date funds (TDFs) is not formal guidance. It is a document of best practices, but it may be used by the DOL for possible litigation, although to date no one has gotten hit with litigation on TDFs. The items in it are all about process. If you are using TDFs and/or propriety funds with your recordkeeper, document it. Use the sheet. Ask yourself why you are making these decisions, and document it.

3. The New Notice of Proposed Rulemaking About Lifetime Income Disclosures: So we have proposed rules, what does it mean?  

“The DOL got a little beat up about its fiduciary regulations so this is an advanced notice,” Levine said.  They want to see what a lifetime disclosure will look like. Many plan sponsors have already implemented these disclosures, working with their providers. This is a good time to speak with providers and understand the assumptions made in current disclosures, and perhaps implement this now. Eventually plan sponsors will be required to disclose this information to participants.

According toFleckner, documenting thoughts and assumptions are important. With this issue, the plaintiffs in any lawsuits will most likely be participants focusing on plans that are not being implemented properly. “Personally, I view these changes as positive. This is designed to force people to think about retirement readiness,” he said.

4. In-Plan Annuities: What are the rules and risks? 

Levine noted that the DOL issued safe harbor rules for picking an annuity provider in 2008. “They are all about process. Go through these and check the boxes,” he said, adding that this is a good way to document the selection of a provider.

5. Fee Disclosure: Is there still a risk for plan fiduciaries? Where is the DOL going from here?  

As fiduciaries, plan sponsors have to provide annual fee disclosures for participants, as well as quarterly disclosures. Levine noted that last year providers were time pressed, but this year they’ve had more time to work on disclosures. Fiduciaries should spend time looking at them again. Ask, for instance, does my summary plan description (SPD) match the disclosures?  Are there any inconsistencies? Does everything line up? Are our fees still good? This is part of the review process. Plan sponsors should benchmark fees periodically and make this part of their regular process.

6. Other DOL Enforcement: What is the DOL looking at? 

Other than fee disclosure, Fleckner said, it’s not clear who the DOL is looking at in its audits, whether it’s service providers or plan sponsors.  It is clear that the agency is focusing on enforcement.

According to Levine, the DOL is also looking at health and welfare plans, so plan sponsors should make sure they have processes in place and documented.

Levine warned that if two agents show up, plan sponsors should hire a lawyer.

But Fleckner said it depends on who the second person is. At times they just send an internal lawyer, but if a plan sponsor sees someone from the SEC or someone from the U.S. attorney’s office, they should hire an attorney.

7. IRS Enforcement: What fiduciaries should be watching for. 

According to Levine, the IRS tends to do performance soft touch audits, which are really compliance checks. Plan sponsors should use these to fix any mistakes. “If you don’t respond, you may be referred to the DOL and/or the Department of Justice,” he warned.

8. Investment Advice and Education: What are the risks for fiduciaries as they are trying to educate participants? 

Levinesaid fiduciaries should make sure provider contracts are clear about whether they are offering advice or education. Plan sponsors should also have fiduciary insurance.

The plan sponsor cannot rely on a consultant, according to the Tibble vs. Edison case, Fleckner said.  Plan sponsors are ultimately are responsible for the fiduciary responsibilities to the plan and participants.

9. Litigations Trends:  What should we watch for? 

There has been more litigation involving retirement plans than ever, Fleckner noted. Cases have concerned company stock as an investment option, fees, and conflicts of interest for fiduciaries. One other issue to be cautious about is doing due diligence to get the best provider for plans and participants.

“Where the next suit comes from exactly, I don’t know, but the kinds of things you can think about to protect yourselves, which we’ve been discussing for the last few days, is to be mindful of your role as a fiduciary so you can justify any disputes,” Fleckner said.

Levineadded that there has been a lot of activity in the 403(b) area about whether church plans or government plans really satisfies those definitions.

10. Tax Reform and System Redesign: How would proposed changes on tax treatment of contributions and capping balances impact the fiduciary? 

Judy Faust Hartnett