Executive Summaries » New DOL Rules Heighten Duties, Personal Liability, of 401K Sponsors

New DOL Rules Heighten Duties, Personal Liability, of 401K Sponsors

February 24, 2014

Business owners who offer a 401k plan are required to comply with the Employee Retirement Income Security Act, a complex federal statute designed as a consumer protection law. Failure to comply with ERISA exposes business owners and other employees who make important decisions about the plan (like general counsel, the CFO or the human resources director) to personal liability. 

New Department of Labor rules require every plan sponsor to obtain and analyze fee disclosures from every plan service provider. A sponsor that requested, but did not obtain, a fee disclosure must notify the DOL that the service provider failed to provide it and inform the DOL whether the service provider has been terminated.

Hiring a fiduciary advisor and understanding what fiduciary advisors are, and are not, responsible for is important for understanding a plan fiduciary’s personal risk. Many plan fiduciaries wrongly believe that when they hire an investment company,  bank, Wall Street firm or an insurance company, they are fulfilling their fiduciary responsibilities.

Hiring a fiduciary is more problematic than one might think. It often leaves plan fiduciaries with the impression they are responsible for nothing. This is a serious legal disconnect, because ERISA imposes many duties beyond investment choices on plan fiduciaries. They often fail to realize that, for example, they must monitor the plan service providers using the new DOL fee disclosure rules. They must also provide disclosures to plan participants about fees, plan information and investment performance.

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