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Design a Good Group Retirement Plan Part 2: First Steps


If the responsibility of creating a successful group retirement plan has fallen to you, the first thing you need to determine is whether service providers (including financial advisors) are actually fiduciaries like they claim they are.

Last time I laid out the basics of a group retirement plan and explained the important duties of the fiduciaries to the plan.

Step one to creating a successful group retirement plan is to determine whether the service providers — including financial advisors — to your plan are fiduciaries. Many service providers verbally claim that they are fiduciaries when in fact they are not.

Simply giving investment recommendations and providing a platform from which participants access investments does not mean that the service provider is a fiduciary as defined by ERISA. The implications here are huge — it means that a non-fiduciary does not have to place the best interests of plan participants first (remember that placing the interests of plan participants first is a primary goal of a group retirement plan). However, a fiduciary advisor is held personally liable for the plan’s assets.

Ask your service providers to state in writing if they are section 3(21) or section 3(38) ERISA fiduciaries. These are the sections that define the fiduciary role of financial advisors to your plan. As of last month the Department of Labor (DOL) made this a little easier for you since the DOL requires every service provider, including financial advisors, to deliver to you a brochure called the 408(b)(2) disclosure in which you will find out whether the advisor or any service provider is acting as a fiduciary. Be careful here. The rules state that if an advisor is not a fiduciary, the advisor will simply not mention it in the brochure, but if he is a fiduciary then the disclosure form will specifically state so. Read this brochure in its entirety and find out the advisor’s fiduciary status.

As a plan trustee you should also have a written systematic process for documenting how you choose outside parties to service the plan, including financial advisors. So if you hire a non-fiduciary advisor you have to explain why a non-fiduciary advisor serves the best interests of plan participants over a fiduciary advisor. Remember the liability falls only on you if you hire a non-fiduciary advisor. This is why having a fiduciary who shares in the liability is so important.

You must also have a detailed process explaining how and why you chose the specific investments in the plan and not other alternatives. I’ve found that most trustees don’t have any process at all or any documentation either. Try doing that when you see patients and good luck in court.

And finally if you are a plan participant, you have a right to find out about this issue as well. Approach your plan trustee and have him show you his documented process for selecting the advisor to your plan. Read the 408(b)(2) disclosure yourself. If you determine your plan trustee hired a non-fiduciary advisor, ask him why.

Next time I’ll discuss the second step you should take to create a good group retirement plan for your medical practice.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice