401K Plan Liabilities Increasing Significantly for Employers

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By Wes Caldwell

Most medical practices don’t know about the significant liability they have regarding their 401k plans and, even worse, almost none know how the government is dramatically increasing its enforcement actions.  I have talked with many medical practices who think that the service provider or plan administrator has the fiduciary responsibility for their 401K or profit-sharing plan. Most employers are often quite surprised to find out that they are the plan sponsor and primary fiduciary since they are the ones who sign the form 5500. They are also very surprised to find out what they must do under the new ERISA fee-disclosure requirements.

What is ERISA section 408(b)(2)?
A new regulation from the Department of Labor requires “covered service providers” to disclose all fees received directly and indirectly from the plan, effective July 1, 2012. These disclosures are then to be distributed to all participants by you, the plan sponsor, but most of you have not even been told that you are the plan sponsor and must comply!

What does this mean to me?
As the plan sponsor, your fiduciary obligations with respect to service providers that submit fee disclosures are the following:

  • Review the disclosed fee information and assess the overall reasonableness of the fees in the context of the services being performed.
  • Review the disclosed information about conflicts of interest among service providers, their related parties, and/or third parties.
  • Based on the above, prudently determine whether to continue, terminate, or modify contracts and arrangements with each of the plan’s service providers.

If these steps are not carried out and well documented, the liability rests on you, the plan sponsor, and you can now expect some serious consequences doled out by the government.

Can I shift the responsibility to a third party?
Yes, many of our medical-practice clients are taking advantage of a program design wherein they are almost completely relieved of their fiduciary liability. The program becomes the plan sponsor and assumes responsibility for all reporting and 408(b)(2) fiduciary obligations. Because of their economies of scale, these programs can generally provide significant administrative cost savings to your plan, as well.

The significant new fiduciary liabilities associated with 401K plans are causing medical professionals to reassess how they approach the administration and management.  We can provide liability relief and cost savings, so call us to discuss.