Business owners beware: If you administer a retirement plan for your employees, you may inadvertently be at risk for litigation and hefty fines.
Why? Employers offering retirement plans face complex responsibility and both corporate and personal liability under the Employee Income Security Act of 1974 (ERISA). ERISA sets minimum standards for pension plans in private industry – and the regulations are fairly complicated.
If your plan is not compliant with new ERISA regulations – even if this noncompliance is unintentional – the Department of Labor (DOL) can hit you with fines and penalties, or require reimbursement for your errors. In fact, 75% of the plans the DOL audited in 2013 faced fines or litigation.
Not knowing or understanding these regulations does not protect employers. That’s because as the employer, you are the plan sponsor – and therefore considered a fiduciary. Fiduciaries are required to act solely in the best interest of plan participants and are held to a higher standard.
If the threat of penalties and criminal indictment were not enough, as an employer you have another reason to monitor your retirement plans – you own interests. If your plan is not performing well, your personal investments can be affected.
So how do you manage the responsibilities and mitigate the risks of retirement plan administration, while providing employees with this important benefit?
- Monitor your plan. Too often, employers start a 401K plan and never revisit it. Make sure you review your plan each year. Be aware of what your plan includes, and shop around to understand alternative options.
- Educate your participants. Provide employees with investment tools and resources, and you will make them more informed and empowered investors.
- Hire a plan fiduciary. A 3(38) investment manager can help reduce your fiduciary risk by assuming the role of selecting,monitoring and replacing investment choices. They receive no compensation from the investment providers and offer complete fee transparency. Most important, when you have a 3(38) investment manager, your plan participants cannot sue you for the choices made by that fiduciary.
If you have a financial professional or service provider, ask if they share in your fiduciary risk. If the answer is yes, get in writing that they are named a fiduciary on your plan.
If your financial professional cannot act as a plan fiduciary due to conflicts of interest, which is common, Beirne Wealth Consulting can help. Contact us to learn more about our role as a 3(38) investment manager, and reduce your corporate and personal risk.
About the Author: Matthew Gallagher is Head of Business Development at Beirne Wealth Consulting, responsible for identifying business opportunities, communicating the firm’s unique capabilities and solutions to prospective clients, and cultivating those relationships on an ongoing basis.
About Beirne Wealth Consulting Services, LLC
Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor with about $2 billion in assets under management and over 25 employees in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.