The Government Accountability Office (GAO) is investigating the practices for fiduciary decision-making for the oversight of plan investments and plan operations. When the investigation is completed, the GAO will issue a report, which will likely be the basis for future legislative proposals.
As a part of their investigation, the GAO interviewed Fred Reish concerning his experience with plan sponsors, providers and advisers and his insights into common fiduciary practices. The discussions covered both those areas in which fiduciaries were generally doing a prudent job and those areas in which fiduciaries were less attentive.
Among Fred’s comments were the following:
1.Fiduciaries are, for the most part, doing a relatively good job of selecting and monitoring a broad range of investment choices, with help from advisers and providers.
2.The fiduciary practices for analyzing expenses have improved in recent years; however, for many plan sponsors (and particularly for small plan sponsors) there has not been significant improvement. Further, most small- and many mid-sized plan sponsors are not aware of revenue sharing and other indirect payments and are not evaluating potential conflicts of interest.
3.Greater attention is being paid to the quality of participant investing than in the past. However, the fiduciaries of many plans do not recognize their responsibility for prudent participant investing. Nonetheless, the increasing popularity of target maturity funds, risk-based lifestyle funds, and managed accounts is having a material and positive impact on participant investing practices.
4.By and large, plan fiduciaries are doing little to educate participants on the level of deferrals needed for adequate retirement benefits. And, for the most part, providers and advisers are not prepared to assist plan sponsors and fiduciaries with the education of participants on that issue. However, some providers are developing those services and will be bringing them to market.
5.Generally speaking, plan sponsors and fiduciaries are not providing participants with information about the level of benefits needed for retirement adequacy. By and large, providers and advisers have not positioned themselves to provide those services. However, those services, such as gap analysis, are being developed and will be introduced into the marketplace.
Disclaimer Required by IRS Rules of Practice:
Any discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.