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How Well Do Your Clients Understand Their Fiduciary Obligations?

Fiduciary Rules and Practices

According to a new white paper, a surprising number of plan sponsor representatives who oversee their companies’ 401(k) plans don’t realize they are fiduciaries under ERISA. 
And some believe they can offload all their fiduciary responsibilities for investments to a third party. In fact, J.P. Morgan’s “Misperceptions of fiduciary responsibilities persist” report reveals that one in four plan sponsors incorrectly believe they have offloaded all their fiduciary responsibilities for the plan’s investment offerings. 

The findings, which are based on the firm’s 2019 DC Plan Sponsor Survey, also reveal that an additional 6% of plan sponsors are unsure when asked whether their organization retains fiduciary responsibility for selecting and monitoring the appropriate investment options.

Of the 25% of sponsors that don’t believe they retain “any” fiduciary responsibility, they provided the following responses when asked who has assumed “some or all” fiduciary responsibility:

  • Plan provider/recordkeeper (45%) 
  • Advisor/consultant (33%)
  • Organization retained for this purpose (15%)
  • Law or accounting firm (6%)

J.P. Morgan notes that on a more positive note, 80% of plan sponsors that recognize they are fiduciaries are “extremely or very confident” they are meeting these obligations. Not surprisingly, this assurance increases with plan asset size, as plan sponsors for more than 90% of the largest plans – those with $250 million or more in AUM – express a high level of confidence. 

On several measures – from having appropriate processes in place for selecting and monitoring investments to understanding the methodology used to construct their plans’ target date funds (TDFs) – plan sponsors that are aware they are fiduciaries were more confident than those who are not aware of their status. 

The low point of these measures was that only 53% of respondents who are aware of their fiduciary status expressed confidence when asked whether they understand the potential for protection for participant assets defaulted into QDIAs during re-enrollment. This was compared to 37% of those who are not aware of their fiduciary status. 

The paper also notes that a surprising number of plan sponsors are also unclear on whether they have a QDIA in their plan; while 40% say they do and 35% say they do not, 25% were unsure. 

The results are based on an online survey of 838 plan sponsors conducted from January through March 2019 by Mathew Greenwald & Associates.