Litigation attorney and uber ERISA blogger, Steve Rosenberg, recently shared his slide deck entitled "Common Mistakes of Plan Sponsors." Part of an educational presentation to U.S. Department of Labor examiners, Steve addressed the importance of getting competitive bids, thoroughly investigating service providers before selecting one or more individuals or firms and avoiding what he coins the "Golf Course RFP." He worries that members of a retirement plan investment committee could bypass best practices in selecting a bank, advisor, consultant, third party administrator and/or asset manager and instead rely too much on a vendor's brand name or overly friendly relationship with someone who works at a company before considered. Deciding to hire someone on the basis of a handshake over a glass of beer or chatting on the greens is ill-advised if it shortcuts proper research about the abilities of a service provider, fees they intend to charge and whether their offerings are likely to meet the needs of a particular defined contribution or defined benefit plan.
Steve warns about other mistakes to avoid, including the identification of who will do what tasks, how often they will be performed and whether a service provider contracts to be a fiduciary. In particular, he frets that members of an ERISA plan committee may select a provider to serve as an investment fiduciary and then incorrectly assume that they have passed the baton and no longer have any liability.
Other errors he cites are part of what he calls the "ESOP Private Company Valuation Problem." These concerns include "insufficient reliance on outside experts" and not hiring an independent fiduciary to oversee a transaction when there are clear conflicts of interest or further expertise is needed.
Interested readers may want to investigate the following educational resources to include:
- "401(k) Plan Bundled Provider Request for Proposal (RFP)," Association for Financial Professionals, 2012 (I am happy to say that I served as a member of the group that wrote this detailed guide.);
- "Boston ERISA Legal Author Stephen Rosenberg Explains DOL's New Fiduciary Definition," by Christopher Carosa, Fiduciary News, January 11, 2011;
- "Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2) Fact Sheet," U.S. Department of Labor, Employee Benefits Security Administration, February 2012;
- "Investment Ethics: How To Make Money And Win Clients" by Susan Mangiero, "Mann on the Street," December 2009, noting that firstname.lastname@example.org is an updated email address; and
- "Tips For Selecting and Monitoring Service Providers For Your Employee Benefit Plan," U.S. Department of Labor, May 2004.