Understanding Your Fiduciary Responsibilities as an HR Executive

posted Katie Hansen 8/14/2019 in Trust

Do you understand your fiduciary responsibility?

Whether you’re in charge of human resources for a Fortune 500 company or a local enterprise with fewer than 100 employees, ensuring you are accurately representing those you serve is paramount to retention and satisfaction in your workplace. Maintaining a compliant benefits program while also keeping your employees’ best interests at heart is not a simple task. Luckily, Lincoln Savings Bank offers up-to-date advice when it comes to managing your business’s benefits.

Surprisingly, 401(k) lawsuits have been on the rise between 2016 and 2017 alone. During this time, there were over 100 new complaints filed regarding corporate-backed employee 401(k) programs.  (Sanzenbacher, 2018) The reasons behind these lawsuits can be varied and complex; however, some key similarities can be found in a majority of the legal contentions. Most commonly, employees of the companies in question felt the person responsible for managing the program acted irresponsibly, potentially putting their retirement funds in harm’s way or causing them to lose growth when it could have otherwise been avoided. As a 401(k)’s fiduciary, the designated HR representative or hired third-party could be subject to scrutiny by the people your company is serving.

To help you navigate your fiduciary responsibilities, we’d like to share the following issues that typically arise in lawsuits related to corporate-backed retirement planning. The following clarifications may assist you and your organization in creating safeguards to ensure that both your fiduciary and the overall management of the fund are in line with your corporation’s expectations. 

Key Takeaways from this Article:

  • When looking for a new vendor ensure you’re evaluating it against current competitors.  
  • Monitor your current vendors and their continuously billed expenses.
  • Review billed expenses on a quarterly or monthly basis.
  • Conduct an annual compliance review of the trust and its associated expenses.
  • Be cautious on including your own stock in a 401k offering, if you do use it have a well-informed research analysis on how it will positively affect the trust.
Avoid Inappropriate Investment Choices

In 1974, the House of Representatives passed the Employee Retirement and Income Security Act (ERISA) to protect the interests of the employees and their beneficiaries who are directly impacted by these corporate-backed retirement plans. According to the Department of Labor, roughly 54 percent of Americans utilize a benefits program through their employer to save for retirement. ERISA protects these individuals and enforces specific regulatory requirements to help ensure that companies are acting in the best interest of their employees. (U.S. Department of Labor, 2017)

Some things you can do to ensure you’re keeping within ERISA’s outlined practices include:

  • When looking for a new vendor, survey several, offering the same information and requirements from each. Then compare plans, services, and fees on the same foundational format to ensure they all have an equal opportunity to present themselves. 
  • Look for a plan with several investing options for employees to utilize. Ensuring there are opportunities for different risk evaluations, or types of investment, is key to diversifying potential offerings while giving employees the power of choice when it comes to their retirement saving.
  • Monitor your current vendors and their continuously-billed expenses. Be sure to raise a concern with the vendor in question if more fees are being expensed than were agreed to in the contract. It is the fiduciary’s responsibility to make certain vendors are still in the best interest of the employees and their beneficiaries. 
Excessive Fees
One of the most common lawsuits surrounding employer-backed retirement plans is centered around the fiduciaries of a plan who have become negligent to excessive fees charged by the plan’s third-party provider. (Sanzenbacher, 2018) These can be costs associated with managed funds, costs to utilize financial tools, or nominal administrative fees that add up over time. To protect your employees’ and their beneficiaries’ best interests, its recommended to do the following:
  • Review the billed expenses from the plan’s third-party provided on a monthly or quarterly basis to ensure they are still in line with the original contracted dollar amount.
  • Conduct an annual audit to ensure the investments being offered by the third-party provider are consistent with current market offerings and at a reasonable price point.
  • If a contracted vendor begins charging fees to the fund managing the plan that are inconsistent with the contracted amounts, dispute the charges and make a formal inquiry as to where the charges are originating.
  • ERISA does not specify a dollar amount that is deemed appropriate for fees charged in regard to managing a retirement plan or fund; however, it does speculate the charges should be held within a reasonable manner. Continuously monitoring these fees and documenting that process could provide and an additional layer of protection when it comes to the liability of managing the 401(k) plan or other retirement benefit offering for the designated fiduciary.
Self-Dealing
Typically, lawsuits built on self-dealing charges deal with fiduciaries who have been accused of acting in their own personal interests while managing the funds for a 401(k) or other retirement offerings. This has been the case in Financial Management companies such as Charles Schwab or JP Morgan, where the prosecuting party argues that the firm in question used investment opportunities that were new and untested or a part of their own portfolio of interests which could directly benefit them. The majority of cases on this subject are still ongoing, although several have been settled outside of court. (Sanzenbacher, 2018)

In 2017, the fiduciary of Sears’ 401(k) plan was sued by one of its participants for including their own failing stock within the plan’s investments. While it is not a crime in itself to include a company’s own stock within a plan, it could pose a liability if gone unmonitored throughout the duration of the plan’s progress. (Sanzenbacher, 2018) When reviewing your company’s investment options, be sure to answer these key questions periodically:

  • Could the fiduciary or the company itself benefit from the use of any investments currently in the plan?
  • How often are the investment options in the plan reviewed, and what is the process for documenting these reviews?
  • If corporate stock is included in the investments of the plan, what measures are being put into place to ensure its incorporation is consistently to the benefit, not hindrance, to the employees?

Your company’s department of human resources needs to have the most up-to-date information when it comes to planning for your employee benefits program. At Lincoln Savings Bank, we make it our mission to empower our customers to pave their own journey to success. With structured 401(k) benefit offerings, and advisors to help your employees invest their funds with knowledge-backed decisions, our team of experienced advisors can help ensure your employees have everything they need in a corporate-backed retirement plan.

To discover how your company’s retirement benefits could help with overall corporate retention, reach out to one of our local advisors to start a conversation. We’d love to learn what makes your business unique and see how our retirement offerings can help both your company and its employees continue to develop to their full potential.

Wealth Management Disclosure

References:
American Century Investments. (2017). Start Your Engines: Employees Want Plan Features that Accelerate Retirement Savings. American City Investments.
Charles Schwab. (2018). 2018 401(k) Participant Survey. Schwab Retirement Plan Services, Inc.
Kemper Capital Management. (2017). Trends in Generational Saving. Retrieved from Kemper Capital Management: http://www.kempercapitalmanagement.com/trends-in-generational-saving
Sanzenbacher, G. S. (2018). 401(k) Lawsuits: What are the causes and consequences? Boston: Center for Retirement Research at Boston College.
U.S. Department of Labor, E. B. (2017). Meeting Your Fiduciary Responsibilities. Employee Benefits Security Administration.
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