Significant Changes to 408(b) regulations impacting all 401(k) plans

In a few short months, new 408(b) regulations become effective.  As of January 1, 2012, service providers, typically listed on annual Form 5500 Section C filings, will be required to disclose whether they are acting as a fiduciary to the plan and, if so, in what capacity.

If you are a plan sponsor, why wait for new 408(b) regulations to become effective? Why not email your service provider now, whether they are an insurance company, mutual fund company, or investment firm, and ask them? This way, you’ve got a time/date stamp, have their answer in writing and you can begin taking actions to strengthen your plan before 2012.

Every plan sponsor has the option to retain, share, or shift investment fiduciary liability under ERISA guidelines, regardless of size of their plan. How? You request current service providers sign on as a co-fiduciary under ERISA section 3(21), thus sharing fiduciary liability. If desiring to shift fiduciary liability almost entirely, then request they sign on under ERISA section 3(38). Under Section 3(38), you as plan sponsor retain responsibility only to the selection and monitoring of a 3(38) investment manager.

If your current service providers respond that they are not acting in a fiduciary capacity, then you, as plan sponsor, retain all fiduciary liability by default. Since ERISA standards require you to know and understand all plan fees, both direct and indirect, then immediately email your service providers and request they fill out the new DOL fee disclosure form.

“Plan sponsors, as fiduciaries to their ERISA plans (such as 401(k) plans), have a duty to know and evaluate the direct and indirect compensation of their plan service providers. The new DOL regulation requires that the service providers give plan sponsors written descriptions of their services and their total compensation.”
- Fred Reish, ERISA attorney

The following steps will help plan sponsors ensure compliance with the new 403(b) regulations:

Step 1:  Determine if your plan provider is acting in a fiduciary capacity? You’ll want their statement of Fiduciary Responsibility in writing and signed.  If it is not in writing, ask them via email. If they answer yes, find out in what capacity.

Step 2:  If the service provider is not acting in a fiduciary capacity, then you retain 100% fiduciary liability by default. If you choose to share some liability, ask your service providers to consider accepting fiduciary liability in writing under ERISA Section 3(21). If you choose to shift as much liability as possible, ask them to accept in writing under ERISA Section 3(38).

Step 3:  If they do not wish to act in a fiduciary capacity, you ought to heavily consider changing to a plan provider who will act in this capacity.  Eventually all plans will be required to have a third-party fiduciary.  It is an inevitable trend that our firm has seen developing for many years which is why we have always served as fiduciaries on our plans. 

If you would like to know more about our firm’s 401k services, please complete the contact form on this page and select “401K” in the drop-down menu.