Beginning next year, plan sponsors will be given more information about:

  • the revenues received by their plan’s service providers (such as recordkeepers and investment consultants), and particularly about the indirect payments those service providers receive from the plan’s investments and investment providers; and
  • the potential conflicts of interest that those service providers have, as well as any procedures they have in place to protect plans against those conflicts.

While ERISA—through its fiduciary responsibility rules—has always contemplated that plan sponsors and their representatives, such as committee members, were investigating and evaluating those issues, the fact is that, in many cases (or perhaps in most cases), plan sponsors did not know about the indirect payments or the conflicts of interest. As a result, some of the new information may be surprising ... or even disturbing ... to plan sponsors.

Regardless of whether the disclosures present new or surprising information to plan sponsors, it is clear that they will be required to review that information and to evaluate it. Correspondingly, it also seems obvious that there will be greater focus on whether plan sponsors are actually fulfilling those tasks. In other words, even though the laws regarding fiduciary responsibilities have not changed, we believe that the actual application of those laws will demand more from plan sponsors. At the least, it will demand that they be attentive to the information they receive.

As a result, plan sponsors are forewarned to (i) review and evaluate the information they receive, (ii) seek outside help if they do not have the internal capabilities to properly evaluate and benchmark the new information; and (iii) meet as a plan committee and discuss the information (or, if you do not have a plan committee, to set one up).

It also seems obvious that this area will be ripe for fiduciary litigation. However, that risk can be avoided by taking the time and energy to evaluate the information received. We believe that most plan sponsors will fall into one of two categories: the “low-hanging fruit” category, which is made up of plan sponsors who do nothing; and the “attentive fiduciary” category, which is made up of plan sponsors who read, discuss, and evaluate the information received. There can be no doubt about which group is at risk.


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.

Source: The Report to Plan Sponsor