For Institutional Use Only Not for Use with Retail Investors RETIREMENT FIDUCIARY FOCUS

Transcription

1 AN ADVISOR S GUIDE TO UNDERSTANDING FIDUCIARY RESPONSIBILITIES IN A 401(k) PLAN For Institutional Use Only Not for Use with Retail Investors RETIREMENT FIDUCIARY FOCUS

2 TABLE OF CONTENTS 1 Introduction 2 What Is the Purpose of the ERISA Fiduciary Rules? 3 Who Is a Fiduciary? 4 Who Is Typically Not a Fiduciary and Why? Are There Different Types of Investment Fiduciaries? 6 How Does Fiduciary Status Impact Your Business Model? 8 Advisor Best Practices 12 Service Provider Checklist Conclusion ERISA is a highly complex area of law. The information contained in this material is strictly educational in nature, is not exhaustive in scope and is not intended as legal advice. Clients are strongly encouraged to obtain legal advice from a qualified expert.

3 INTRODUCTION Today there is significant scrutiny being placed on plan sponsors in their fiduciary role. As a result, sponsors are looking for more assistance from retirement plan experts to help them understand and meet their responsibilities. This presents you with a timely opportunity to evaluate your retirement plan practice, consider the level of expertise and service you provide your clients and decide in light of recent and expected changes if your current service model is ready to deliver what sponsors expect. In 2012, the service provider fee disclosure regulations went into effect. They emphasize the plan sponsor s fiduciary obligation to avoid excessive planrelated and investment-related fees that over time eat away at participants savings. Traditionally, sponsors focused much of their attention on the investments in the plan, and they relied on knowledgeable advisors to provide help and advice. Now, however, plan sponsors need more. As they grasp the complexities of their fiduciary duties, they will be looking for guidance about how they can meet all their responsibilities. In short, they re going to ask you for help. This Guide provides you with an overview of select ERISA fiduciary rules and explains how these rules may impact your retirement plan practice. In addition, it suggests some best practices to guide you through assessing your fiduciary status under your current service model and identifies opportunities to enhance the fiduciary support you can provide to your clients whether or not you serve as a plan fiduciary. One thing that is glaringly clear today is the focus on fiduciary responsibilities. This is certain to intensify as the Department of Labor (DOL) enforces its fee disclosure regulations and continues its efforts to expand the definition of investment fiduciary. As with most changes on the regulatory landscape, the focus on ERISA fiduciaries can create opportunities for advisors who proactively assess their current business model, analyze needs and identify solutions. 1 RETIREMENT FIDUCIARY FOCUS

4 WHAT IS THE PURPOSE OF THE ERISA FIDUCIARY RULES? The fiduciary rules under the Employee Retirement Income Security Act (ERISA) are designed to ensure that individuals with authority to manage retirement plans and plan assets act in the best interests of plan participants and handle plan assets properly. ERISA and its fiduciary rules apply to advisors who serve as fiduciaries to 401(k) plans or ERISA 403(b) plans, as well as other defined contribution and defined benefit plans. There is also a separate set of fiduciary rules administered by the Securities and Exchange Commission (SEC), which treats registered investment advisors as fiduciaries when delivering investment advice. The focus of this Guide is on the ERISA fiduciary standards. ERISA Fiduciary Responsibilities ERISA fiduciaries have important responsibilities and are subject to high standards of conduct in view of their obligations to retirement plan participants and their beneficiaries. If you are an ERISA fiduciary, you have the following responsibilities: Act solely in the best interests of the plan participants and their beneficiaries An ERISA fiduciary must act solely in the interests of the plan participants and beneficiaries and with the exclusive purpose of providing benefits to them. Fiduciaries are required to disclose conflicts of interest and are prohibited from engaging in self-dealing (for example, actions that primarily serve the fiduciary s interests) Carry out duties prudently A fiduciary must carry out his or her duties with the care, skill, prudence and diligence that a prudent person familiar with the matter at hand would use. If a fiduciary does not have the expertise to handle these responsibilities, he or she must engage professionals who have that expertise Diversify investments ERISA requires plan sponsors to diversify the plan s investments in order to minimize the risk of large losses Follow the terms of the plan documents The plan documents serve as the foundation for plan operations. Interpretation of plan terms and providing operational oversight is a fiduciary function, and not following the terms of the plan document can be a fiduciary breach Pay only reasonable plan expenses The plan fiduciary must monitor any plan service providers that are hired and ensure that only reasonable fees are paid from plan assets for plan services and investments Following a prudent process in carrying out fiduciary responsibilities is key to ERISA compliance. Setting up sound procedures and systems with checks and balances and documenting decisions relative to fiduciary responsibilities helps demonstrate procedural prudence. Fiduciaries must take their responsibilities seriously. Fiduciaries may be held personally liable for plan losses caused by an ERISA fiduciary breach and may be required to restore plan losses (including interest), return ill-gotten gains, and pay the expenses relating to corrections (such as appraisals and calculations). The DOL has authority to pursue both criminal and civil enforcement actions under the fiduciary rules. To protect plan assets from loss caused by fraudulent or dishonest acts, ERISA requires every fiduciary of a plan or other individual who handles plan assets to be covered under a fidelity bond. Many fiduciaries will also carry fiduciary insurance. Though not required by ERISA, fiduciary liability insurance protects fiduciaries in the event they incur liability related to their responsibilities. 2

5 WHO IS A FIDUCIARY? Under ERISA, an individual or entity that administers an employee benefit plan, such as a 401(k) plan, or manages plan assets, is a fiduciary. Some fiduciaries are named in plan documents, while others are appointed or become subject to the fiduciary standards as a result of the functions they perform for the plan. Not every fiduciary is responsible for every aspect of investment selection, plan administration or other fiduciary responsibility. FIDUCIARY Named Fiduciary (Plan Sponsor) ROLES & RESPONSIBILITIES Under ERISA 402(a), every plan must have at least one fiduciary, a person or an entity, named in the written plan (or through a process identified in the plan document). Named Fiduciary The plan sponsor is typically the named fiduciary. The named fiduciary may be identified by office (for example, chief financial officer or board of directors) or by name Delegation of Responsibilities A plan sponsor may hire non-fiduciary service providers such as recordkeepers and third party administrators (TPAs) to help the plan sponsor meet its fiduciary responsibilities. The plan sponsor may also hire or appoint other fiduciaries to whom they delegate responsibilities such as investment selection. If the plan sponsor properly delegates certain fiduciary responsibilities to other fiduciaries, the plan sponsor will not be liable for a breach of these responsibilities Trustee Plan Administrator (ERISA 3(16)) Investment Adviser (ERISA 3(21)) Investment Manager (ERISA 3(38)) ERISA plan assets must be held in trust for the benefit of each participant, unless the plan is funded exclusively with insurance contracts. All trustees are considered by the DOL to be plan fiduciaries and are subject to fiduciary standards when performing the functions of trustee. The plan administrator described in ERISA 3(16) is responsible for the day-to-day administrative decisions regarding a plan, such as implementing plan provisions and authorizing distributions. Many plan documents name the plan sponsor as the ERISA plan administrator. TPAs and recordkeepers are generally not considered ERISA 3(16) plan administrators because they perform services at the direction of the ERISA 3(16) fiduciary and do not have discretion as to how a plan is administered. Some plan sponsors hire an investment consultant or other service provider to serve as a limited-scope fiduciary investment adviser under ERISA 3(21). The plan sponsor has fiduciary responsibility for the prudent selection of the investment adviser and an ongoing fiduciary obligation to evaluate and implement the guidance and recommendations of the investment consultant. The plan sponsor typically shares fiduciary responsibility for plan investment decisions with the investment adviser. Some plan sponsors hire an ERISA 3(38) investment manager to take full discretionary responsibility for selecting and monitoring plan investments. An ERISA investment manager must be a bank, insurance company or registered investment adviser. The plan sponsor has fiduciary responsibility for the prudent selection of the investment manager, but once appointed, the investment manager is solely responsible for its investment decisions. 3 RETIREMENT FIDUCIARY FOCUS

6 WHO IS TYPICALLY NOT A FIDUCIARY AND WHY? In addition to the fiduciaries described in the previous section, there are others who support a retirement plan. These service providers play an important role in ensuring that a plan operates smoothly and in compliance with the laws governing retirement plans, but they are generally not fiduciaries of the plan. Determining whether an individual is a plan fiduciary depends on whether they exercise discretion or control over the plan or its assets. NON-FIDUCIARY Recordkeepers & Third Party Administrators (TPAs) Attorneys Accountants Consultants Certain Financial Advisors ROLES & RESPONSIBILITIES Recordkeepers and TPAs are typically not fiduciaries because they act at the direction of the plan sponsor (usually based on a service agreement) when performing their duties, such as data management, investment and transaction processing, compliance testing, plan document drafting and Form 5500 preparation. Other professionals, such as attorneys and accountants, are often hired to advise plan sponsors. These individuals typically lack discretionary authority with respect to the plan and thus are not subject to the ERISA fiduciary rules. For the same reason, consultants hired by the plan to perform certain functions such as asset valuations or assistance in service provider selection are also generally not plan fiduciaries. An advisor to a plan may or may not be a fiduciary, depending upon the scope of investment support services provided to the plan and plan participants. Many of the traditional activities of financial advisors are considered non-fiduciary functions, including delivering generic investment guidance, providing enrollment support and helping plan sponsors understand their fiduciary responsibility. ARE THERE DIFFERENT TYPES OF INVESTMENT FIDUCIARIES? If advisors elect to offer ERISA fiduciary services, they typically do so regarding plan investments. ERISA offers two different models for delivering fiduciary investment support. ERISA 3(38) Investment Managers An ERISA Section 3(38) investment manager arrangement provides a plan sponsor the greatest opportunity to transfer ERISA fiduciary responsibility for investment selection and monitoring. Offering your services as an ERISA 3(38) investment manager can give you a competitive advantage because it may appeal to plan sponsors who want to completely off-load their investmentrelated fiduciary responsibilities. Eligibility Under ERISA Section 3(38), only a bank, insurance company, or registered investment adviser may assume the role of an ERISA investment manager. If you do not qualify to serve as a 3(38) investment manager but feel this option best serves your client s needs, you may wish to identify various outsourced solutions to introduce to the client Scope of Responsibility The 3(38) fiduciary takes on full discretionary responsibility for selecting and monitoring plan investments Plan Sponsor Role The selection and periodic monitoring of the investment manager by the plan sponsor is a fiduciary responsibility. Once the investment manager is appointed, however, the investment manager is solely responsible for investment decisions, relieving the plan sponsor of liability related to investment selection and performance Mutual Agreement Both the plan fiduciary (the plan sponsor) and the investment manager must agree, in writing, to the arrangement 4

7 Although the concept of transferring fiduciary responsibility for plan investments may be appealing, only a small percentage of plan sponsors actually appoint ERISA 3(38) investment managers. One reason is cost. The fees associated with ERISA 3(38) investment manager services may seem high to plan sponsors as compared to 3(21) fiduciary services and non-fiduciary investment support. Another reason is loss of control. Some plan sponsors may be uncomfortable giving up the right to have some say in the investment menu for their plan, including the discretion to adjust their advisor s recommendations as they deem appropriate. ERISA 3(21) Investment Advisers A more common path for advisors is to offer fiduciary investment support under ERISA Section 3(21). Eligibility A person or entity becomes a fiduciary under ERISA 3(21)(A) if it: Exercises any discretionary authority or discretionary control with respect to the management of the plan or disposition of plan assets Renders investment advice for a fee or any other direct or indirect compensation Has discretionary authority or responsibility in the administration of the plan Compensation Advisors who serve as a 3(21) fiduciary typically do so as a result of providing investment advice for a fee or other compensation Scope of Responsibility If you serve as a fiduciary under ERISA 3(21), you agree to be subject to the fiduciary standards with respect to your investment recommendations, and you become subject to the DOL s enforcement jurisdiction. The plan fiduciary (typically the plan sponsor) retains ultimate legal responsibility for the selection and monitoring of the investments. In other words, as a 3(21) fiduciary, you share investment-related fiduciary responsibility with the plan sponsor Plan Sponsor Role The selection of an ERISA 3(21) investment adviser is a fiduciary function. The plan sponsor has an ongoing fiduciary obligation to monitor the actions and decisions of the investment adviser and shares fiduciary responsibility with the adviser regarding plan investments Appointed vs. Functional Fiduciary Advisors who offer 3(21) fiduciary support typically enter into a written agreement with the plan sponsor. Even if you are not formally appointed as a fiduciary, however, you can become subject to the ERISA fiduciary standards if you exercise discretionary control over the management of the plan or plan assets (for example, you have the right to modify the plan s investment menu), or because you are deemed to be providing investment advice for a fee under the following DOL fivepart test As the advisor, do you render advice: 1. As to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing or selling securities or other property? 2. On a regular basis? 3. Pursuant to a mutual agreement or understanding with the plan or a plan fiduciary? 4. That serves as a primary basis for the investment decisions with respect to plan assets? 5. That is individualized based on the particular needs of the plan? The DOL created this five-part test to determine when investment advice provided by an advisor for a fee results in fiduciary status under ERISA 3(21)(A)(ii). All five elements must be present. 5 RETIREMENT FIDUCIARY FOCUS

8 Considerations when discussing ERISA 3(21) services with plan sponsors: Cost The fees associated with ERISA 3(21) services will vary depending upon the scope of services you provide, but many plan sponsors find the fees are appropriate in exchange for the deeper level of support and the shared ERISA fiduciary responsibility for selecting and monitoring investments Shared Responsibility As plan sponsors feel they are under heightened regulatory scrutiny to meet their fiduciary obligations, they often demand higher levels of support from advisors, including shared fiduciary responsibility. Offering 3(21)-level support is one more service that strengthens your position as a retirement specialist Plan Sponsor Control Some plan sponsors will allow their 3(21) fiduciary fairly broad, discretionary powers with respect to investment selection, sometimes referred to as a full-scope fiduciary. Other 3(21) arrangements require the plan sponsor to direct and approve the fiduciary advisor s recommendations. Under ERISA 3(21), there is flexibility to tailor the level of control desired by the plan sponsor. Being an ERISA 3(21) investment adviser may be an option for those advisors whose firm might not allow them to be ERISA 3(38) investment managers Non-fiduciary Investment Support It is important to keep in mind that you are not required to become an ERISA fiduciary when providing investmentrelated services to a retirement plan. In fact, some broker-dealers prohibit their advisors from providing fiduciary services or restrict those services to advisors who have completed special training or certification programs. Many traditional advisor activities are considered non-fiduciary functions: Delivering generic investment education, helping with risk tolerance assessments or providing sample age and risk-based portfolios Providing enrollment services Offering operational support such as helping with the mechanics of moving to a new recordkeeper Assisting with vendor searches Providing plan reports and analytics such as participation rates Helping plan sponsors understand their fiduciary responsibility HOW DOES FIDUCIARY STATUS IMPACT YOUR BUSINESS MODEL? Investment Fiduciary Compensation One reason it is so important for you to understand whether you are an ERISA fiduciary is that it may affect the compensation models you use with your clients. As a general rule, ERISA and the Internal Revenue Code prohibit a fiduciary investment adviser from receiving compensation from the investment vehicles that they recommend to plan participants unless the advisor operates under a special prohibited transaction exemption under ERISA. Some fiduciary advisors opt to forego the compensation paid from investments altogether and use an alternative arrangement that assesses fees based on specific services. The fees are either paid by the plan sponsor or debited from plan assets. Other advisors operate under certain fee arrangements that compensate them through the investment vehicle, which have been ruled by the DOL to merit special prohibited transaction relief. Another option for advisors who wish to receive compensation from investment vehicles is to rely on the level compensation or computer fee model arrangements outlined in the DOL s 2011 final investment advice regulations. These arrangements, referred to as eligible investment advice arrangements, enable the investment fiduciaries to accept fees (such as commissions or 12b-1 fees) from the investment vehicles they recommend provided they follow the parameters in the regulations. 6

9 Under the level compensation arrangement, all investments selected by a plan must result in the same amount of compensation paid to the advisor and his or her broker-dealer firm. In this arrangement, the trading platform or other service provider typically collects all 12b-1 fees, for example, and pays a set amount to the advisor (for example, 25 or 40 basis points) regardless of which investments are ultimately selected by plan participants. This eliminates the potential for conflicts of interest because the advisor s recommendations will not impact his or her compensation. Level compensation options are becoming increasingly common. The second eligible investment advice arrangement set forth in the 2011 regulations limits fiduciary investment recommendations to a list of investments generated by a computer model that has been developed and audited under DOL standards. Both the level compensation and computer model options require annual audits and special participant disclosures. Expanded Definition of Fiduciary Forthcoming According to the DOL, in the almost 40 years since the original regulations defining an ERISA investment fiduciary became effective, the retirement plan marketplace has evolved in ways that could not have been foreseen by the regulation drafters. Defined contribution plans have replaced defined benefit plans as the predominant employer-sponsored retirement plan type. And new, complex investment products and strategies have been developed for retirement plans, making plan sponsors and participants increasingly dependent upon the advice of consultants and advisors. Yet, if the advisor is not a fiduciary under ERISA, the DOL is concerned he or she is not required to disclose conflicts of interest and is insufficiently subject to liability under ERISA. As a result, among other changes, in 2010 the DOL proposed to modify the five-part test by eliminating the requirements that the advice be provided on a regular basis and that the advice be the primary basis for the investment decision. These two changes would significantly expand the group of consultants and advisors who would be considered ERISA fiduciaries based on their provision of investment advice. As a further consequence, the fee arrangements for certain financial advisors that are acceptable today because the advisor is not a fiduciary would be prohibited under the proposed regulations if the advisor s status changed to that of a fiduciary. The proposed regulations stirred up a strong response from the retirement industry and other interested parties. While supportive of protecting plan sponsors and participants, many in the industry expressed the concern that the regulations were simply too broad in defining fiduciary activity and would lead to increased costs and complexity. In September 2011, the DOL announced that it was withdrawing the proposed regulations and would re-propose the fiduciary definition regulations to reflect certain revisions to DOL s desired approach and address the voluminous public comment regarding the prior proposed rule. 7 RETIREMENT FIDUCIARY FOCUS

10 ADVISOR BEST PRACTICES 1. ANALYZE YOUR CURRENT PRACTICE FROM A BUSINESS AND REGULATORY PERSPECTIVE Determine Your Fiduciary Status Depending upon the needs of your clients, the scope of support you provide may vary from plan to plan, such that you may act as a fiduciary for some plan sponsors but not for others. You should consider conducting a selfassessment of your current practices from an ERISA fiduciary perspective. There are multiple paths that could result in ERISA fiduciary status. ERISA FIDUCIARY STATUS CHECKLIST Do you state that you are an ERISA fiduciary in any written documents such as a service agreement or marketing materials? Do you ever make investment decisions without plan sponsor approval (such as adding or replacing a fund on the plan investment menu)? Does your plan-level investment support satisfy the current five-part test such that you would be considered to be providing investment advice for a fee (ERISA 3(21)(A)(ii))? Do you make personalized investment recommendations to participants based on their particular needs and objectives? Do you have the authority to hire and fire service providers (such as the ability to execute contracts with vendors)? Fiduciary Advisor Considerations If you conclude that you are an ERISA fiduciary, you may wish to consider the following additional questions. Did you intend to act as a fiduciary? Is fiduciary status important to your business model? Is it essential that you perform the fiduciary functions, or would it be better for you to introduce an outsourced fiduciary solution? Are there any limitations on your ability to act as a fiduciary that are imposed by your broker-dealer or another party? Do you have the proper ERISA fidelity bonds in place? 8

11 Should you secure ERISA fiduciary insurance? Do you have carefully documented procedures in place to illustrate how you perform your fiduciary obligations? Do you keep records of the fiduciary decisions you make? Have you explored and disclosed all potential conflicts of interest and confirmed that no non-exempt ERISA prohibited transactions have arisen? Is your compensation structure acceptable under the investment advice regulations or other applicable regulatory framework? Have you clearly communicated which services you provide as an ERISA fiduciary and which services are non-fiduciary support services? Non-fiduciary Advisor Considerations Nothing in either the current fiduciary rules or in the DOL s proposed regulations require an advisor to be an ERISA fiduciary. If you conclude that your current practice does not trigger ERISA fiduciary status, you may wish to evaluate whether your non-fiduciary status poses any competitive challenges. Are you losing business to other advisors who offer fiduciary support services? If fiduciary support is needed, would it be beneficial to outsource this function using one of the fiduciary solutions available in the retirement marketplace? If you are contemplating delivery of fiduciary support services yourself, are there any barriers to entering that space (such as broker-dealer restrictions, lack of expertise or experience)? 2. DEFINE AND COMMUNICATE YOUR FIDUCIARY SUPPORT VALUE PROPOSITION Fiduciary Advisor Value Proposition If you determine that your optimum business model includes offering fiduciary support, you should incorporate that into the value proposition you present to prospective and existing clients. You need to communicate why a prospect should work with you as opposed to another advisor and how your existing clients benefit from your expertise. Components of a value proposition may include items such as special licensing or credentials, honors or recognition, retirement plan training programs completed, specialized experience in working with certain types of plans or market segments, or successes achieved with other plan sponsors. In addition, you may wish to explain how your support as an ERISA fiduciary will help plan sponsors meet their fiduciary obligations. There is no single correct formula for positioning services. You should focus on the higher level of support and oversight you provide as a fiduciary and the strict standards of conduct you will follow. Non-fiduciary Advisor Value Proposition If you decide you want to be a nonfiduciary advisor, communicate the broad scope of support services you will deliver, focusing on your retirement plan and investment expertise. Many of the support functions performed by an advisor are not fiduciary functions under ERISA. In addition, describe any special relationships you have with other service providers to illustrate the depth and breadth of support your plan sponsor clients will receive if they engage your services, including outsourced fiduciary support services. You may find that you will benefit from focusing your message on how the plan sponsor will benefit from your support rather than simply providing a checklist of services. Whether you choose to offer fiduciary or non-fiduciary services, you can provide valuable assistance to help plan sponsors comply with DOL and ERISA rules everything from providing information about a plan sponsor s fiduciary obligations to proposing strategies to help mitigate fiduciary risk. In either case, the scope and complexity of the services you provide can be an important part of your value proposition and help to position you firmly as a retirement specialist. 9 RETIREMENT FIDUCIARY FOCUS

12 3. HELP PLAN SPONSORS UNDERSTAND AND FULFILL THEIR FIDUCIARY RESPONSIBILITIES One of the most important roles you can play is to help plan sponsors understand what is expected of them under ERISA when they choose to adopt a plan. Many plan sponsors do not understand what it means to be a fiduciary. You can provide basic fiduciary education or information and then build upon that foundation to help them understand what is expected of them as new regulatory initiatives are launched, such as the fee disclosure requirements. This type of support enables you to showcase your retirement plan expertise and demonstrate the level of support you can provide to the plan. If you do not have access to basic fiduciary education materials, you can tap into the library of free educational resources available on the DOL website ( For example, the publication Meeting Your Fiduciary Responsibilities is designed to provide plan sponsors with an overview of the basic fiduciary responsibilities they take on when they adopt a retirement plan. Because it is designed to be used by a plan sponsor, it avoids overly technical terminology and explanations. You can provide the publication as a resource to leave with a prospective plan sponsor or existing clients, or use it as a training guide for live presentations. Another tool you can introduce that plan sponsors may find helpful is the DOL s interactive ERISA Fiduciary Advisor ( introduction.htm). This online tool guides plan sponsors through a series of questions to identify whether he or she is a fiduciary and provides information and answers to a variety of questions about fiduciaries and fiduciary responsibilities. It also provides links to more detailed information on key topics. You may wish to Use the interactive tool as part of an educational session on fiduciary responsibilities Incorporate some of the content from the tool into your presentations at quarterly meetings or other educational sessions with plan sponsors Introduce the tool to plan sponsor clients to access when questions arise There is a list of fiduciary-related topics that you can use as part of a fiduciary education program, including Available help for employers who make mistakes in operating a plan Helping plan sponsors understand their plan costs and fees Help Plan Sponsors Assemble the Right Support Team As an ERISA fiduciary, a plan sponsor is often said to be held to the standard of the prudent expert because an ERISA fiduciary s actions are judged against someone who is knowledgeable about retirement plan administration and plan investments. Many plan sponsors hire skilled investment professionals and retirement plan administration professionals to meet this standard. You can play a valuable role in helping plan sponsors assemble a strong team of service providers to help ensure the plan meets business objectives and operates in compliance, thereby mitigating the plan sponsors fiduciary risk. 10

13 Many advisors play an active role in helping plan sponsors select and monitor service providers and serve as the gateway to vendors such as TPAs, recordkeepers and trustees that the advisor has worked with successfully in the past. This typically involves helping the plan sponsor look at a number of providers, comparing the same variables with each one and considering whether the fees are reasonable for the services provided. Advisors are also often the source of the benchmarking information that enables plan sponsors to determine the reasonableness of fees, a fiduciary obligation that has become more important under the ERISA 408(b)(2) service provider disclosures rules. Listed below are examples of the types of support services an advisor may discuss with a plan sponsor. SUPPORT SERVICES FOR RETIREMENT PLANS Investment Expertise Plan sponsors must evaluate the type of investment support they need for their plan and the reasonableness of the fees charged for those support services. Depending upon the scope of the investment services provided by the advisor, the plan sponsor may need to tap into additional investment support to meet plan objectives and fiduciary responsibilities. You can assist the plan sponsor in evaluating the benefits and costs of various investment support options both services you can offer as well as additional options available through other service providers. ERISA 3(21) co-fiduciary support services ERISA 3(38) investment management support Participant advice services Participant educational programs Calculators and tools Administrative & Operational Support Other Support Services Internal Support Most plan sponsors find it necessary to engage the services of a TPA or recordkeeper to provide administrative support to deal with compliance testing, plan documents and filing of Form 5500 as well as handle the data and transaction processing that underlie the workings of a 401(k) plan. Selecting these administrative service providers is a fiduciary function. Many advisors play a key role in helping plan sponsors with the due diligence process, including helping them document the rationale for their decisions, both when hiring service providers and when periodically monitoring service performance. An attorney may be hired to advise the plan sponsor, prepare and submit plan correction materials, assist with regulatory enforcement actions and draft plan documents. Accountants may be hired to conduct plan audits or perform various calculations regarding deductibility or annual contributions. Some plan sponsors hire consultants to help with service provider searches or to provide specialized expertise for a specific project, such as an investment policy statement review. In addition to hiring outside professionals, you may wish to discuss with the plan sponsor opportunities for a plan committee or an investment committee to help administer the plan and share the fiduciary responsibilities. 11 RETIREMENT FIDUCIARY FOCUS

14 Service Provider Checklist The process of selecting service providers will vary depending on the services required. As you help plan sponsors review service provider options, you should consider some of these issues: SERVICE PROVIDER CHECKLIST 1 Are the services necessary for the administration of the plan? Yes No 2 Are the fees reasonable for the service provided? Yes No 3 Have you documented the process you used to select (or review) your service providers and the reasons you selected each particular provider? Yes No 4 Have you compared the service provider s performance and fee schedule to other providers (e.g., through an RFP)? Yes No 5 Is the service provider required to be licensed? If so, is the license current? Yes No 6 Has your service provider delivered the services described in your service agreement?* Yes No 7 Do you have any plan participant comments or complaints regarding the services?* Yes No * Applies when reviewing existing service providers. You should keep current on significant rule changes and industry trends. This is especially important with respect to the ERISA fiduciary rules, which are in a state of transition. There are news sources you can rely on to monitor regulatory and industry developments. As changes occur, you must evaluate how these changes affect you and your clients and then proactively communicate updates to plan sponsors when appropriate. DOL Website: New & Noteworthy The DOL provides retirement plan news updates on its website, A summary of recent DOL retirement plan activity titled New and Noteworthy and a list of free DOL webcasts and workshops are displayed. Any significant developments regarding the investment fiduciary definition are likely to appear on this page shortly after being released Definition of the Term Fiduciary Proposed Rule The DOL has created a web page devoted exclusively to the proposed changes in the definition of fiduciary: regs/cmt-1210-ab32.html. This web page lists public comments, hearing testimony and links to news releases and other information regarding the proposed rule IRS E-News: Employee Plans News One easy way for advisors to monitor new developments affecting retirement plans is to subscribe to the free IRS e-news service, Employee Plans News. You can sign up to receive the e-newsletter by going to Employee-Plans-News-3 CONCLUSION Plan sponsor fiduciary responsibilities and the role of investment advisor as ERISA fiduciaries are sure to remain an important focus for plan sponsors and the DOL. Advisors who proactively evaluate and adjust their current business practices whether offering fiduciary or non-fiduciary support will be in the best position to serve as the retirement specialist that prospective clients are looking for as well as to provide the guidance their existing clients need. 12

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16 TAKEACTIONACTION Call your Senior Retirement Consultant at for more information on how OppenheimerFunds can help make meeting fiduciary responsibilities easier. Visit oppenheimerfunds.com Scan this code to learn more about us: Search Google Currents for OppFunds to access our timely thought leadership Visit blog.oppenheimerfunds.com Follow us: Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or to avoid penalties that may be imposed under U.S. federal tax laws. Clients should contact their own legal or tax advisors to learn more about the rules that may affect individual situations. Before investing in any of the Oppenheimer funds, investors should carefully consider a fund s investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by visiting oppenheimerfunds.com or calling Investors should read prospectuses and summary prospectuses carefully before investing. For Institutional Use Only. This material may not be further distributed or reproduced and may not be shown to, quoted or used with retail investors. Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. Two World Financial Center, 225 Liberty Street, New York, NY OppenheimerFunds Distributor, Inc. All rights reserved. RPL May 1, 2013