Recently, the United States Government Accountability Office (“GAO”) presented its report to the Chairman, Committee on Education, and Labor, House of Representatives that indicated that plan sponsors face significant challenges in fulfilling their obligations to plan participants and beneficiaries when fiduciary obligations are not clearly defined or when plan sponsors lack important information about arrangements between service providers.
In its report, the GAO noted that plan sponsors often hire outside professionals to manage some or all the 401(k) plan’s day-to-day activities and that these service providers may exercise sufficient control or discretion over plan assets making them fiduciaries under ERISA. However, the role of the service provider is often not accurately defined, leaving potential fiduciary gaps. The report indicated that in some situations plan sponsors assumed that they had delegated the fiduciary responsibility to select and monitor funds to the service provider, but the service provider never acknowledge its fiduciary role. The report also summarized the various actions taken by the Department of Labor to monitor a plan sponsor’s fiduciary oversight.
In order to help the DOL improve fiduciary oversight, the GAO reminded the Chairman that it had previously asked Congress to amend ERISA to (1) specifically require 401(k) service providers to disclose to plan sponsors the compensation that they receive from other service providers and (2) give the DOL greater authority to recover plan losses against certain types of service providers, even if they are not considered ERISA fiduciaries.
The GAO report is another indication of the increasing government focus on 401(k) plans and the fiduciary obligations of plan sponsors. As summarized in the Firm’s May 2008 Seminar and the recent webinar, the focus on fiduciary responsibilities will only continue to increase in the future. With an estimated $2.3 trillion dollars invested in participant-directed retirement plans, various government and private interests will continue to push for reduced administrative fees, greater disclosure of all fee arrangements between service providers, and the need to provide participants with more investment information. To meet these increasing demands, plan sponsors must periodically review their plans in order to meet their fiduciary obligations under ERISA. As noted in the Seminar and webinar, plan fiduciaries are expected to act prudently in managing and operating their plans.