Financial Professionals May Risk ERISA Violations When Consulting on Employer-Sponsored Retirement Plans
Oct. 12, 2005 (Des Moines, Iowa) — Unknowingly, many financial professionals today may run the risk of violating ERISA regulations simply by doing their jobs. As employers become more aware of their responsibilities for managing their retirement plans, they are increasingly seeking help from financial professionals. However, when financial professionals provide this assistance - particularly in terms of selecting and monitoring investments options - they may unwittingly assume a fiduciary role under ERISA definitions. To help educate financial professionals such as brokers, agents, intermediaries, and consultants on this issue, the Principal Financial Group® is releasing a white paper co-authored by Bruce Ashton, Esq., and by leading ERISA expert, Fred Reish, partner and managing director of the law firm of Reish Luftman Reicher & Cohen.
"Financial professionals play an important role in the success of most 401(k) plans," explains Reish. "However, there is a trap for the unwary because ERISA has a functional definition of fiduciary. That is, if a financial professional provides fiduciary-level services, then he or she will be a fiduciary. The greatest risk exists when a financial professional provides those services and unknowingly becomes an ERISA fiduciary."
Reish's white paper - available in The Principal® Research Center at www.principal.com/research - focuses on how and when financial professionals take on a fiduciary role by providing assistance to retirement plan clients. It also discusses the steps they should take to fulfill their fiduciary duties, and it provides guidelines for disclosing compensation based on whether or not they are acting as a fiduciary.
not they are acting as a fiduciary. "Some financial professionals may choose to assume a fiduciary role as a marketing advantage; others may decide to protect themselves from assuming this responsibility," says Tim Minard, senior vice president-retirement distribution, The Principal®. "Either way, it's imperative that today's financial professionals are aware of the risks and responsibilities. This white paper gives them the information they need to make informed decisions."
Reish advises financial professionals who choose to act as fiduciaries to observe the duty of loyalty to participants and carry out services for the exclusive purpose of providing retirement benefits to the participants. He also recommends that all financial professionals, regardless of their fiduciary status, consider teaming with service providers that are aligned with the interests of plan fiduciaries.
About Fred Reish, Esq.
Fred Reish has practiced employee benefits law since 1973. He has written four books and over 200 articles on ERISA, IRS and DOL audits and pension plan disputes. Mr. Reish authors a monthly column on 401(k) fiduciary responsibility for Plan Sponsor magazine, as well as a quarterly column on that subject for the Journal of Pension Benefits. As an expert on ERISA matters, Mr. Reish is frequently quoted by both professional and public publications, including Fortune, Forbes, Inc., CFO Magazine, The New York Times, The Washington Post, Institutional Investor, Pensions & Investments and more.
About The Principal Financial Group
The Principal Financial Group®
(The Principal®)1
is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $187.8 billion in assets under management2 and serves some 15.2 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1) "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2) As of June 30, 2005.
Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group, Des Moines, IA 50392.
