Should A 401k Plan Sponsor Take On The Additional Fiduciary Liability Associated With Retirees?
As seen in Fiduciary News on October 19, 2021
Clearly, the needs of retirees, who are busy spending down their retirement savings, are quite different from the needs of employees, who are (or should be) busy building up their retirement savings. And, although on the face of it the fiduciary process should be similar for both demographics, the reality is these different needs may require different kinds of services. That, in turn, may raise the fiduciary liability for those responsible for plan operations.
“Plan sponsors should evaluate whether and how their retirement plan offering should include resources to assist retirees with decumulation decisions,” says Brian G. Blackwell, Director of Financial Planning in Atlanta, Georgia. “The needs of retirees are different from accumulators and go far beyond a good investment lineup.”
The question, however, is not whether 401k plan sponsors have fiduciary responsibility for retirees that remain in the plan (they do). The real question is whether plan sponsors want to take on this additional burden.
“Plan sponsors want to retain these (hopefully) larger balance accounts but the liability may be too high,” says Chris Gure, Investment Consultant, North Carolina. “Retirement planning is difficult enough, trying to do that within the guidelines of a corporate retirement plan is going to add to that burden.”
To some, there are compelling motives, both for the former employee and the employer, to take on this added load.
“There are two reasons a plan sponsor should want to accept this burden,” says Donny Gamble, CEO in Miami, Florida. “The first is that it mitigates the risk involved when using a third party. The second is that it gives you more direct control over the financial well-being of your employees, who have dedicated their lives to your company.”
Don’t take this second reason too lightly. It may not be an ERISA requirement, but there are those who believe it is a moral imperative.
“It’s part of the responsibility plan sponsors are signing up for!” says Julian Schubach, Vice President of ODI Financial in Long Island, New York. “It would be irresponsible for a sponsor to provide ongoing support and fiduciary services to just the active participants in a plan. In many cases, terminated or retired participants have the option to rollover their savings into an IRA, or if they have a balance under $5,000, often, they may be automatically rolled over into an IRA with the custodian holding the retirement plans money.”
With Baby Boomers retiring at an accelerated rate, this mass exodus of assets from plans can have a detrimental impact on the remaining workers who are still in the plan.
Read the full article here!
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