You Oughta Know

Mark Daly: Agency boosts pressure for retirement-plan compliance

Managing director-investment officer, Rathbone Warwick & Daly Investment Consulting of Wells Fargo Advisors LLCMay 21, 2014 

Mark Daly

The hallmark of a true professional is the ability to explain complex topics and ideas in terms and language almost everyone can understand. Jeff Mandell of Boise's ERISA Law Group possesses that skill.

During a recent conversation, Jeff noted a "radical shift" away from the IRS-enforced tax benefits of 401(k) and other qualified retirement plans, known as Title II of the Employee Retirement Income Securities Act, or ERISA.

Title I, administered by the U.S. Department of Labor, was created to address concerns that pension funds were being mismanaged. It contains rules for plan reporting, disclosure to employees, vesting, participation, funding and fiduciary conduct, and it has civil penalties for noncompliance.

"Historically, there has been relatively little government enforcement locally, which of course does not excuse noncompliance but seems to have made compliance less of a priority for some employers," Mandell says.

That appears to be changing under Phyllis Borzi, assistant secretary of the Employee Benefits Security Administration. EBSA is responsible for enforcing ERISA sections governing plan fiduciaries and the reporting of plan information, and protecting plan assets and participants.

Borzi openly encourages plan participants to complain. Chapter 10 of the Department of Labor's Retirement Plan Guide describes situations under which the plan and its fiduciaries may be sued. Department "benefits advisers" may be easily contacted via the department's website or a toll-free number.

So what's a plan trustee, employer or plan sponsor to do?

According to Mandell, "Title I is easy to comply with, but you must follow some basic steps.

"Start with a legible plan summary. Make sure the quarterly statements are readable. Disclose all fees and expenses. Track the investments at least annually, and use an investment professional."

What he means is follow a process and document that process. Anything that happens in the plan must be in the best interest of participants, and employers must be able to prove it by following best practices for documentation, plan design and ongoing monitoring.

We believe taking a plan to market is one effective way of achieving compliance. Benchmarking is a systematic process that examines investments, services, and fees in a market setting. Potential bidders are identified for financial strength, product excellence, delivery systems and demographics. The finished product shows all costs associated with the plan in dollars and as a percentage of plan assets. It also shows all fees and expenses, and who receives them. These include the plan provider, third-party administrator, investment manager(s) and plan consultant.

Mandell says paying attention is important - the cost of correction can take a huge emotional and monetary toll. Fines are typically a multiple of dollars times days out of compliance.

"Fixing avoidable problems can be difficult, leaving the employer with uncomfortable decisions that involve large risks, which only grow over time."

Employers' plates are full, but a little love now, shown to the plan and its participants, could avoid an expensive lesson in compliance. The success or failure of a plan is ultimately determined by the participants' ability to retire, on time, with an adequate account balance to replace a portion of their salary or wage income.

Mark Daly: 333-1433

Idaho Statesman is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service