Fiduciary Risk Management

It’s only been since the Enron & WorldCom debacles that the Department of Labor has been stepping up its efforts to enforce the fiduciary requirements of ERISA, and the rate of fiduciary breach lawsuits has been increasing significantly over the past few years. A large part of fulfilling one’s fiduciary responsibility, and the focus of many of the current fiduciary breach lawsuits, involves the reasonableness of the fees and compensation paid to service providers. This can be a challenging task since much of the fees and compensation are not an easily identified hard dollar line item on an invoice. Furthermore, these fees and compensation are often hidden or hard to find within contracts and prospectuses which can amount to hundreds of pages.

What’s the big deal about fees? Ben Franklin’s old adage, “A penny saved is a penny earned” applies here, and those pennies really add up. According to the Department of Labor a 1% difference in fees and expenses over an average 35 year working career could reduce a participant’s account balance at retirement by 28%!

Although the mission of Prudent Champion, Inc. is to assist all fiduciaries in achieving fiduciary excellence, it’s important to note the risk of fiduciary failure:

ERISA § 409 states that a fiduciary is personally liable for any losses the plan incurs by reason of its breach.

ERISA 502(i) outlines potential civil penalties.

Internal Revenue Code Section 4975 outlines potential excise tax penalties.

US Federal Criminal Code, Title 18, Section 1954 outlines potential criminal penalties.

Outlining the penalties of fiduciary failure might be interpreted as fear-mongering; however, it is critical that all fiduciaries understand the magnitude of their responsibilities. While these fiduciary responsibilities might appear daunting, the Department of Labor not only allows, but suggests that “Unless they possess the necessary expertise to evaluate such factors, fiduciaries would need to obtain the advice of a qualified, independent expert.”

Learn more about:

Fiduciary Due Diligence

408(b)(2) Fee Certification Service

The Prudent Suite: A Complete Benefit Plan Management Solution

Fiduciary Vulnerability Assessment

Fiduciary Excellence Assessment