With the passing of another year, I first must express my heartfelt appreciation for the support that you have given this blog over the years. Nick Curabba and I first set it up in 2008, following the lead and advice of Jerry Kalish. There never seems to be a shortage of interesting things about which to write. Thank you.
One of the things which has been keeping us very busy lately is something very unusual: we have been doing substantial research into the allocation of fiduciary obligations.
The growing complication of the ERISA regulatory scheme is causing many retirement plan sponsors to seek some measure of relief. As important as the rules are, they are making it a more difficult task to properly maintain what used to be very simple defined contribution plans. Between growing fiduciary obligations, increased disclosure and reporting rules, a growing panoply of different retirement plan products, its not easy to maintain a 401(k) or 403(b) plan anymore.This, in turn, really forms the basis for the popularity of MEPs and PEOs, as a number of service providers seek to fulfill a pressing market demand for a new kind of professional fiduciary which address these employer concerns. As we deep dive into how the fiduciary rules actually work, I am struck by the manner in which fiduciary allocations were initially structured under ERISA, and how they have evolved since then. Looking closely at the original statutory language, it is clear that plans were established with a single fiduciary, a "trustee," in mind: in the days before daily valuations; mutual fund investment accounts in defined contribution plans; before employee contributions were the predominant feature of these plans; before the differences between 3(16), 3(21) and 3(28) were parsed and analyzed; an employer establishing a profit sharing plan would usually seek to hire a centralized fiduciary to run the plan. This fiduciary would manage the assets of plan, provide the trust account, custody the assets and often provide all of the recordkeeping and compliance services required by the plan. Often, these were provided by institutions like bank trust departments, where the trust department was clearly the fiduciary for all activities under the plan; or held in annuity contracts, were the insurance company was, likewise, regularly seen as centralizing and controlling plan activities. The market has moved dramatically over a generation, away from a centralized independent authority which took full responsibility for operating a plan. Lawyers, such as myself, would regularly counsel service provider clients to do anything but accept fiduciary status. That status, we advised, should be left to the employer. Then we proceeded to slice and dice up those services, always making sure that the employer/plan sponsor would bear the brunt of responsibility. However, it is the centralized, professional fiduciary model (well beyond the professional investment fiduciary) to which employers again are returning, as the sophistication of maintaining the plan is well beyond the ken of the typical employer. Especially since the DOL’s MEP advisory Opinion in 2012-4,where a single plan model was turned down by the DOL, we find ourselves now to turning to ERISA Sections 402 and 405 to explore ways to cost effectively aggregate these centralized services which the market is again demanding. It is back to the future, in many ways. Most professionals I know pay scant attention to these allocation rules, which dictate how fiduciary allocations are effected. Even more telling are the regulations under these sections, which go into detail of the process related to these allocations. As we re-think fiduciary allocations, this old, dusty portion of the ERISA now becomes critical. The statutory language is actually quite simple, but it talks of things little discussed. I encourage you to click here to read the rules. It will become a basic part of the repertoire of the type of service provider who is now seeking to provide what used to be the traditional level of fiduciary responsibility. ___ A New Years treat, of sort. I have come up with a couple of interesting historical pieces, which are relevant to what we do today. First, I went through my Mom’s old vinyl records, and discovered an album of John F. Kennedy’s old speeches. I was particularly taken by JFK’s "New Frontier" speech, a 2 1/2 minute clip from it to which I am linking, below. I invite you to listen to it, and think some about a point I have made from time to time on this blog: what we do with retirement plans makes a difference. This is important public policy which affects large numbers of folks. Though the rules are small, this is big stuff, and stuff which is undergoing dramatic change. The choices related to retirement plans which are soon to be made in tax reform will be setting important policy which will affect our lives for years to come. And, as Kennedy points out, the task is not easy. Next, I stumbled across in my files a counterpoint, the now infamous "Ownership Society" political memo coming from the Bush White House in 2005. The privatization of social security was seriously promoted in it. Though both pieces (the New Frontier and the ownership memo) speak to personal responsibility, the Ownership Society advocates it in a way which suggests that we are all better off, instead, at going it alone. Take a look: White House Ownership Society can be found by clicking here. An MP3 clip of JFK’s New Frontier can be found by clicking here. ___ Wishing you all a New Year full of those things which bring you peace. I look forward to seeing and keeping in touch with many of you during the year. Bob Toth