Birmingham, MI (PRWEB) August 29, 2006
Companies have long been concerned with liability connected to their 401(k) operation because the fiduciaries on the plan can be held personally liable. This fear has resulted in fewer options for 401(k) participants. The signing of the Pension Protection Act of 2006 (PPA) allows companies to shift liability to “fiduciary advisors.” For 401(k) and 403(b) account holders, it means that more professional support options are on the way.
As the PPA makes its way into the marketplace, the real story may be plan sponsors’ ability to insulate themselves from liability. Under the PPA, plan sponsors can carefully select a managed 401(k)/403(b) service and for those who use it, the liability is shifted away from the fiduciaries on the plan.
“We’re recommending that plan sponsors use a fiduciary advisor program as a way to insulate their fiduciaries from the liability associated with participant investment advice,” said Ron W. Hagan, Chief Operating Officer of Roland|Criss Fiduciary Services, a leading fiduciary protection specialist. “The Pension Protection Act gives plan sponsors protection in the area of governance and controls and participant investment advice. We’re helping our clients understand the implications of this far-reaching new law and implement processes that reduce their fiduciary exposure,” said Hagan.
Plan sponsors gain additional benefits under the PPA with an automatic enrollment feature. Under an automatic enrollment plan, employees must choose to opt-out of a plan as opposed to enrolling into a plan. Plan Sponsors can insulate their fiduciaries from liability by receiving written documentation from those employees who do not elect to participate. Additionally, if a plan sponsor offers a fiduciary advisor program for managing participant accounts, participants and plan sponsors gain the protection of a prudent expert who now bears fiduciary responsibility of participant investment advice.
This way, every person in their 401(k)/403(b) plan would either be enrolled in the managed 401(k) service (liability shifted to the managed 401(k) provider) or they would have signed a document stating they have willingly taken on the risk of managing the account on their own.
“This is good news on a number of fronts,” said Jeff Sinatra, Chief Operating Officer of Actium LLC, a firm focused on providing a managed 401(k) service. “First, plan sponsors will begin to add this new service quickly, which means more options for plan participants. Second, the actual investment selection will need to be well-documented and mutual funds carefully monitored by the group managing the accounts,” said Sinatra. The days of off-the-cuff advice are officially over because every investment selection will need to be supported by an actual process – more good news for 401(k) account holders.
The 401(k) landscape is shifting dramatically, and mostly for the better. However, there is still the potential for conflicted advice. The PPA has removed the long-standing conflict of interest rule that stopped fund providers from choosing funds on behalf of 401(k)/403(b) participants. It will be up to the plan sponsors to act as the gatekeeper to assure their employees are not receiving conflicted management and/or advice.
The PPA is also leading to some interesting alliances within the 401(k)/403(b) industry. For example, Roland|Criss, a fiduciary protection specialist, and Actium LLC, a managed 401(k) provider, have formed a strategic partnership. “It’s a partnership that makes sense due to the signing of the Pension Protection Act. Since we provide a fiduciary oversight program on behalf of plan sponsor fiduciaries, the managed 401(k) service goes way beyond what mere participant education can accomplish,” says Hagan.
Ultimately, the PPA will result in the 401(k) taking on many of the characteristics once found only in defined benefit plans, including auto-enrollment, professional management, and auto-savings increases.
The signing of the PPA means the 401(k)/403(b) of tomorrow will look far different than the one of today.