The root of these broader fiduciary concerns lies within the domain of compliance. Everything derives from what the regulators require, what any DOL audit might look at, and what might pique the interest of class-action attorneys.
Basic Members
Oddly the first question, the one asked from the plan sponsor’s perspective, came back with a slightly different answer (identifying appropriate investment options and then providing employee education regarding those options). This second question, from the professional fiduciary’s outlook, adds a bit of emphasis on fees. Are the different responses significant? Is the similarity in responses a problem?
That’s what a new education can focus on. Instead of the same-old-same-old of emphasizing “saving early and often,” education should think past the sale.
Here’s the irony of the tax saving incentive. If it’s wildly successful and leads to very large retirement accounts, the required minimum distributions at retirement may place the now retired employee in a higher tax bracket than the one experienced while working.
You cannot understate the fiduciary aspect of lower fees. Most 401k plan sponsors, and especially those in smaller plans, don’t have the time or expertise to administer their company’s retirement plan. If they skimp on fees, are they also skimping on the fiduciary protection those professionals are supposed to provide?
“The ERISA plaintiffs’ bar has overlooked the potential value of the Restatement’s prudent investor rule and its application to litigation involving 401k plans.”
This dilemma isn’t new. Trust officers have had to face it for generations. It’s called a “split-interest” trust. Multiply this split interest problem by the number of beneficiaries in a typical retirement plan and you can see how this conflict grows more complex.
While this might ruffle the feathers of ESG activists, those responsible for the day-to-day work of picking stocks have the real-world experience to fully understand where Buffett is coming from.
The Biden Rule, like the Trump Rule, does not encourage or discourage the use of ESG criteria when selecting investments. This allows fiduciaries to either adopt ESG principles or ignore them.
Retirement plan sponsors may also benefit from teaching entrepreneurial skills to their employees. Such lessons could also provide employees with opportunities to begin to practice what they learned directly for their current employer.
