Are you at risk with your 401(k) plan?
The 2008 Supreme Court decision in the case of LaRue v DeWolff exposes employers
to claims of loss from any retirement plan participant, if there is a fiduciary
breach. This new risk makes it critical to avoid fiduciary breaches.
Fiduciary breaches are critical because many employees will make small claims, each
of which may involve several thousand dollars in settlements and legal fees. The
effect of these multiple cases can be very costly for even the most well-intentioned
employer.
Protection from these multiple claims requires that employers take steps to prevent
fiduciary breaches and obtain adequate insurance, in the event of a claim.
Prevention starts with correcting any existing breaches but complex rules and regulations
make detecting breaches very difficult. Your current service providers may not be
aware or highlight existing fiduciary breaches for fear of losing you as a client.
The Fiduciary Risk Assessment (FRA) is simple first step in identifying existing
fiduciary breaches. An employer can use FRA privately to determine if there are
fiduciary breaches that increase exposure to employee claims by answering a series
of confidential questions.
Very few plans can claim to be entirely free of fiduciary breaches. The following
are the most common fiduciary breaches that may have gone unnoticed in the past,
but today, create exposure to participant claims:
- An investment line-up that underperforms or is high cost without the procedural
prudence of regular reviews. Every plan must perform regular investment reviews.
- Obtaining advice on establishment or change to an investment line-up without
using procedural prudence to select the adviser and the investments. Adviser selection
and investment selection must be documented.
- Participant receiving advice about which investments to select without the
protection afforded by the Fiduciary Adviser. Helpful verbal advice to a participant
can be a fiduciary breach that makes an employer liable if losses are incurred.
- Failing to ensure that every participant has sufficient information to make informed
decisions without a qualified default investment alternative (QDIA). Enrollment
meetings and educational materials offer no protection from participants claiming
the fiduciary breach of insufficient information.
- Failure to make required disclosures. There is no protection for this failure.
Assessment Procedure
The Fiduciary Risk Assessment will identify fiduciary breaches that may exist in
your plan and if necessary, make recommendations for further analysis or steps that
should be taken.
Performing the assessment is simple. Obtain and complete the Fiduciary Risk Disclosure
Worksheet and send to
FRA@DALBAR.COM. After
receipt of payment you will receive a confidential evaluation of the fiduciary risk
associated with your participant directed 401(k) plan and recommendations for reducing
fiduciary risk.
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Confidential evaluation fee for companies that agree to permit their disclosures
in an aggregated statistical benchmark.
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$1,500
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(Available through June 2008) Confidential evaluation fee for companies that are
not included in statistical benchmark
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$5,000
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