Who's Watching Retirement Savings?

CU360
May 22, 2009 | COMMENTS

In good times, when markets are rising and retirement security seems a given, few employees question whether their 401(k) plan's fiduciaries are doing their job or not. But these days, it's a valid concern, according to a Grant Thornton survey reported in The Wall Street Journal.

Only 27% of 275 plan sponsors use an independent party to analyze plan fees, according to the survey. Only 58% of plan sponsors maintain minutes of retirement plan meetings. And a mere 29% have a "clear chain of authority for their plan's governance committee."

Given those findings, Grant Thornton said the retirement plans surveyed—and presumably many others—would have a tough time "supporting the prudence of their fiduciary decisions in the face of a Department of Labor audit."

Plan sponsors must be able to demonstrate how they make decisions and operate their plans in accordance with the law and plan documents. That's clearly not the case in many plans. Also missing among plan sponsors is an understanding of stable value products, which are offered as the default investment in some plans. Nearly seven of 10 respondents aren't sure if certain stable-value provisions apply to their plans, according to the survey. And a new rule that affects the financial reporting of employee benefit plans has many plan sponsors in a quandary. With provisions to define, measure, and expand disclosures about fair-value measurements, the new rule is anticipated to have a significant effect on financial reporting, but only 53% of the respondents said they are ready to comply.

To be sure, survey sponsor Grant Thornton is in the business of auditing this type of benefit plan. But do the results raise a possibility that retirement plan fiduciaries are not doing their jobs? "Absolutely," says Don Trone, founder of Fiduciary Ethos. "It's not a trend, but a constant. And it's not because of malfeasance."

The reasons fiduciaries are not doing their job, according to Trone, are threefold:

• The vast majority of 401(k) plans are with small businesses, and owners and trustees already have a full plate running their companies.
• ERISA rules are complex, dense, and obtuse—they're rules written by lawyers for lawyers.
• The Department of Labor doesn't provide any investment fiduciary training. Training on plan administration is available, but not investment training.

One possibility, said Trone, is that we might see more 401(k) plan participant lawsuits. Another implication is that plan participants should ask more questions and find ways to monitor their plans, given that fiduciaries might not be doing their jobs. But retirement savers have even bigger problems to worry about, Trone adds. He questions the ability of Social Security and 401(k) plans to provide adequate retirement income, and he reaches what he admits is a surprising conclusion.

"Participants should worry that the government does nothing," Trone said. "I can't believe I'm saying that, but the average worker today is facing a retirement crisis." The government needs to move to a mandatory retirement system, based on an automatic deduction of 7% from the worker and a required 7% match by the employer, recommends Trone.