Business Panel Perspective

Fiduciary Duties & Retirement Plans

Your Responsibilities are Changing

Minnesota Business held a panel discussion recently, featuring four experts to talk about the changes to the Department of Labor’s regulations on employer responsibilities towards retirement plans and other employee benefits. Panelists included David Levi,CPA, PFS, Sr. Managing Director at CBIZ MHM; Lisa Lamm Bachman, Managing Partner at Foley and Mansfield; Joe Swanson, retirement plan Specialist and Employer Consultant at Principal Advisor Network; and Brian Bergman, CPA/Managing Director at CBIZ MHM.


What is a fiduciary?

Lamm Bachman: A fiduciary is an entity or person that exercises discretionary control over an employee retirement benefit plan’s administration or assets. A fiduciary must administer the employee retirement benefit plan in a prudent manner and act in the best interest of the plan participants and the beneficiaries with the exclusive purpose of providing plan benefits. A fiduciary is obligated to ensure that they are monitoring the retirement benefit plan and that the expenses charged to the plan are not excessive.

As a fiduciary to an employee retirement benefit plan, employers should maintain documentation of any decision made relative to the benefit plan and how it is being managed. This includes the selection of plan vendors, monitoring vendor performance, and conducting routine reviews of charged service fees for plan administration.

What is the Department of Labor’s fiduciary rule?

Lamm Bachman: The fiduciary rule defines a fiduciary as any individual receiving compensation in exchange for providing advice that is used in making investment decisions for ERISA-covered retirement plans and IRA’s. There are two components to the fiduciary rule. First, if the investment advice is provided to plan participants and plan sponsors for a fee, then it must be in the best interest of the participant or sponsor. Second, the fiduciary rule requires that the investment advisor make prudent investment recommendations, charge only reasonable compensation, and make no misrepresentations regarding the recommended investments. The Department of Labor also issued a prohibited companion exemption, which is referred to as the “best interest contract exemption” (BIC exemption). The BIC exemption is especially important for small employer-sponsored retirement plans (holding less than $50 million in assets), which requires investment advisors and financial institutions to take additional action to ensure that recommendations are in the best interest of the plan participants. Such steps include providing clients with written acknowledgment that the advisor is a fiduciary, as well as making ongoing disclosures describing the advisor’s standard of care, compensation structure and fees, and access to a website setting forth more detailed disclosures.

What’s the purpose of the rule?

Lamm Bachman: The purpose of the rule stems from the Department of Labor’s concerns about the estimated billions of dollars that investors were losing due to their reliance on conflicted financial advice. Financial advisors were steering investors into investments that benefitted the financial advisors by generating fees as opposed to an investment that was in the best interest of the retirement investor. The intent of the fiduciary rule is to increase the fiduciary obligations for investment advisors who provide investment advice to retirement plan sponsors and participants. Broadly speaking, the fiduciary rule identifies the obligations of an investment advisor, what types of investment advice are covered by the rule, and any applicable exemptions from the rule. The rule will apply to anyone giving investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries, IRA’s and IRA owners and it will establish basic standards for professional conduct to address what the Department of Labor has characterized as annual losses of billions of dollars to ordinary retirement investors resulting from receiving conflicted investment advice. For purposes of the fiduciary rule, an investment recommendation includes a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.

How does this new rule apply to plan sponsors?

Lamm Bachman: Although employers are not likely considered a fiduciary under the rule’s definition, there are still steps that employers need to follow to ensure compliance. First, employers should review the service agreements with the financial advisors and financial institutions that service their retirement plan to determine whether any additional disclosures are required per the BIC exemption. Likewise, the employer should endeavor to determine the financial advisor’s fee structure and confirm that the fee practices are in the best interest of the plan participants. Finally, since there is a distinction between general retirement planning education and investment advice, employers should take steps to understand the differences and ensure that information provided to employees as investment education actually qualifies as such under the fiduciary rule.

As a fiduciary, what does it mean to monitor your retirement plan?

Swanson: You must tune into this plan once a year. You also have a requirement to do the compliance work for your plan and maybe an audit, as well as pass certain tests to make sure your plan qualifies and stays in existence. At the annual meeting, you’ll review things like fees, services, investments offered to participants, and policies for replacing funds.

What are some best practices for investment monitoring?

Swanson: Get some sort of documentation of the investment monitoring process on a quarterly basis. Larger employers meet quarterly. Smaller employers tend to, in our experience, not want to meet every quarter. So, we provide them with electronic documentation of the work we’re doing. A good consultant should be able to bring you competitive bids from other vendors. Meaning if you have a great vendor now, and they’re doing their job, there isn’t a requirement to replace those every three to five years. But it’s a best practice probably every five years to look at that and document and assess if you’re getting a competitive price structure. You should also be documenting what services you’re getting.

What things are overlooked when it comes to investment monitoring?

Swanson: One is employee education. This includes your process of educating your employees and monitoring their success in the plan. Investor behavior as whole, primarily in retirement plans, is an issue. If you’ve done the annual reviewing or you’re doing the quarterly review, you know what the fund’s performance is, but do you know what your participants have done?

What is the biggest challenge for employers with the new rule?

Swanson: Implementing the change. Some employers say they feel exhausted. One of the great things about this change is it’s made everyone in our industry assess if they’re good at this or not, and if they’ll be a fiduciary for an employer or not. And it’s made employers assess the level of their plan. Continuous monitoring over the lifecycle of the plan also takes a lot of time. Is the plan still accomplishing our goals? Are participants saving enough to retire? How are we measuring that? Are they getting similar investment returns to the investments we’re providing them? Of course, we’re going to make sure we have top-notch investments. All these things create a successful outcome for the participants, which should be the goal. And when you do that well, you’re sitting well as a fiduciary from a responsibility and a liability standpoint, because you’ve done the things that you’re supposed to do.

What is a cost/fee policy?

Swanson: A cost/fee policy is a policy of how you’re billing fees to your plan and participants. A cost policy is a bit of a cutting-edge item, but it lays out the ways we will gather fees to run our plan. It’s for the plan to pay all the fees for the audits and the administration and the advisor. Or, it’s fine for an employer to pay the bill. Even a basic plan like this helps people make prudent decisions in the future. Additionally, about 70 percent of plans have a policy on how to replace investments. If you don’t have one already, you can usually borrow them from a good consultant and follow the process and a policy that they’ve built.

What is an audit?

Bergman: An audit is an ERISA requirement for any plan with greater than 100 participants at the beginning of the plan year. The plan is required attach a set of audited financial statements to the Form 5500, the plan’s tax filing, on annual basis. The participant counts for determining whether the plan has more than 100 participants has to include eligible employees even if they elect not to participate. So you count eligible and not participating employees, participating employees, and former participants that still have a balance in the plan to come up with the participant count at the beginning of the plan year.

Does an audit look at investment performance?

Bergman: Yes. We look at investments and their performance against the market. We are looking to see that plan participants are getting the correct rate of return by comparing their returns to outside sources. We also look transfers between investment options to ensure those transfers are in accordance with the participant’s direction and are made on a timely basis.

What are the common pitfalls fiduciaries face?

Bergman: We look for areas where the plan administrator is not following the plan document, such as eligibility. For example, a common error we see in non-compliance with the plan document is the exclusion of part time employees. In some cases, the plan document does not have a specific exclusion for part time employees. Rather, they have a length of service requirement such as one, three, six or twelve months of service. We see cases where “summer help” is excluded from plan participation because the plan administrator does not think of them as possible participants in the plan. If a plan has a one or three month eligibility rule, then those “Summer help” employees will be eligible once they meet the length of service requirement.

Another big area we see non-compliance is in the area of compensation. Every plan has a plan document. Each plan document can be different and so can the definition of compensation. We see cases where an employee receives a bonus and no 401k deferral is taken out. Unless the plan document’s definition of plan compensation excludes bonuses, improper compensation has been used to determine the deferrals and often the employer match. It is very important the plan document is followed. A plan is a qualified plan only if acceptable to the IRS (IRS determination letter) and if the plan document is being followed. If not, the plan could be disqualified.

Another area we look at, and that the department of labor has been watching, is the timely remittance of participant deferrals. As soon as your payroll is complete and the participant deferrals can be segregated from company assets, those deferrals should be remitted to the plan. Once a routine timeframe from segregation to remittance is established, that timeframe should be used as a benchmark. Sometime we see a few payrolls during the year where the lag is longer than the benchmark. Often this is due to oversight or a person being on vacation. Be mindful that these deferral are being attended to and getting remitted timely.

How does an auditor help you?

Bergman: We’re looking at documents from third parties and making sure that the contributions you’re putting into the plan are getting in there. We’re also looking at the common pitfalls I mentioned. I also think my team does a good job at sitting down and talking with our clients at the end of an audit. We talk about things that maybe could be done better. Then, we write a management letter that memorializes the things we talked about and that need to be worked on to make sure they’re following the plan document.


Note: As a result of the election of President Trump and his campaign promise to reduce federal regulations, the current state of and application date of the fiduciary rule remains uncertain. The fiduciary rule was initially published on April 18, 2016, became effective on June 7, 2016, and has an applicability date of April 10, 2017 for, among other things, defining who is a “fiduciary” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code of 1986. On February 3, 2017, President Trump issued an Executive Order directing the Department of Labor to further examine the final fiduciary rule to determine whether the rule adversely affects the ability of Americans to gain access to retirement information and financial advice. As a part of this examination, the Department of Labor was directed to prepare an updated economic and legal analysis relative to the following items:

  • Whether the anticipated fiduciary rule has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
  • Whether the anticipated fiduciary rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirement; and
  • Whether the final rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.

On March 2, 2017, the Department of Labor issued a proposal to extend the applicability date of the fiduciary rule for 60 days to June 10, 2017. The Department of Labor invites comments on the 60-day delay of the applicability date to be submitted on or before March 17, 2017. Likewise, the Department of Labor has also invited comments regarding President Trump’s Executive Order relative to the fiduciary rule to be submitted on or before April 17, 2017.


Meet the Panelists


David Levi, CPA, PFS
Sr. Managing Director, CBIZ MHM, LLC.

David is a certified public accountant with over 30 years of experience in public accounting. He is also the Sr. Managing Director in CBIZ’s Minneapolis office and has worked with companies ranging in size from small, development-stage companies to companies in excess of $200 million in revenue. David graduated from the University of Iowa – Iowa City, with a Bachelor’s Degree in Accounting. He has also received the American Institute of Certified Public Accountants (AICPA) Personal Financial Specialist Designation.


Lisa Lamm Bachman
Employment Attorney and Minneapolis Managing Partner, Foley and Mansfield

Lisa is a managing partner in Foley & Mansfield’s Minneapolis office focusing her practice on employment law and litigation. Defending employers relative to matters involving discrimination, retaliation, whistleblower, FMLA, ERISA and FLSA, Ms. Bachman has successfully tried numerous cases before both bench and jury, and handled more than a dozen appellate proceedings. Ms. Bachman also assists employers in responding to inquiries initiated by administrative agencies and charges of discrimination filed with the EEOC, the Minnesota Department of Human Rights and the Minneapolis Department of Civil Rights.    


Joe Swanson
Retirement Plan Specialist and Employer Consultant, Principal Advisor Network

Joe has worked with over 100 employers regarding their plans ranging from startup to over $100,000,000 in plan assets. His background in small-business retirement planning and implementation helps employers manage their Deferred Compensation, 401(k), Pension and ESOP Plans. Swanson first started in the Financial Services business with Principal in the summer of 2003. His past professional activities include the Minneapolis Chamber of Commerce Small Business Committee and the Minnesota State Colleges and Universities (MnSCU) Trustee where he served as treasurer of the MnSCU Board.   


Brian Bergman
CPA/Managing Director, CBIZ MHM, LLC.

Brian is a director and shareholder in CBIZ MHM’s Minneapolis office and has worked with companies ranging in size from small, development-stage companies to companies in excess of $150 million in revenue and $10 million in equity.  He has extensive experience with auditing employee benefit plans, including defined contribution, defined benefit and employee stock ownership plans. Brian has direct responsibility for the benefit plan audits for the Minneapolis office.   


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