ERISA Advisory Council Probes Retirement Plan Outsourcing
This week the ERISA Advisory Council turned its attention to the issue of outsourcing employee benefit plan services, how that might impact and influence fiduciary responsibilities, and even touched on how an accreditation program could help fiduciaries make more informed outsourcing choices, something that NAPA has already begun developing.
The latter point was made during questions posed by the Council to the Employee Benefits Security Administration (EBSA) own Lou Campagna. The first witness at the hearing, he emphasized that a plan sponsor who imprudently selects an outsourced fiduciary is liable for that fiduciary’s actions, and that even failing to merely enforce the terms of the contract with the outsourced provider could amount to a breach of fiduciary duty. He was asked by the Council if EBSA should begin providing accreditation for providers of outsourced services to help plan sponsors avoid selection-based breaches of duty. He demurred, noting that such a licensing process should be left to experts in the private sector.
ASPPA/NAPA/NTSA members were well represented among the expert witnesses at the hearing, including ASPPA/NAPA member Pete Swisher of Pentegra Retirement Services, ASPPA member Terry Power of Platinum 401(k) and ASPPA/NTSA member Robert Toth of the Law Office of Robert J. Toth, Jr., LLC.
A common theme of the meeting: plan sponsors should be helped to remember that, while they may be outsourcing plan design, asset allocation, advisor selection and ongoing portfolio management, they cannot outsource their own liability, with regard to both choosing and monitoring providers.
While certain agency plan functions have traditionally been outsourced for practical reasons, such as record keeping in defined contribution (DC) plans, there has been a growing trend among plan sponsors to consider outsourcing functions like investment fund selection and strategy. The outsourcing of these functions, typically performed by plan sponsors or other employer fiduciaries (frequently with the assistance of consultants or financial advisors), presents a unique set of challenges that EBSA may address based on the results of Tuesday’s meeting.
The Council was urged to consider whether the risks of outsourcing may justify new regulation or whether “sub-regulatory” updates to the EBSA’s plain language guides on the provider selection and monitoring process would be sufficient. Other recommendations related more directly to outsourced providers for multiple employer plans, including bringing fidelity bond rules up to date to reflect modern plan asset totals.
The Council intends to draft recommendations this fall to the Secretary of Labor for best practices in selecting and monitoring outsourced service providers, including performance standards, benchmarking costs and mitigating conflicts of interest.
The Council will meet again Thursday, August 21 to discuss “Issues and Considerations around Facilitating Lifetime Plan Participation.” Stay tuned.
Ray Harmon, Esq., is ASPPA/NAPA Government Affairs Counsel.