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704-557-0307
Email: info@all-about-money.com
10612-D Providence Rd.
Suite 325
Charlotte, NC 28277-0233
Suite 325
Charlotte, NC 28277-0233
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Corporate Liability
ERISA is the basic law designed to protect the rights of participants and beneficiaries of employee benefit plans offered by employers, unions, etc. ERISA imposes various qualification standards and fiduciary responsibilities on both welfare benefit and retirement plans, and provides enforcement procedures as well. In the retirement area, it also provides standards for tax qualification.
Are you a trustee or sponsor of an employee retirement plan? Do you exercise any authority or control over any type of employee retirement plan? If the answer is Yes to either of these questions, you are a fiduciary. As a fiduciary, you must comply with the Employment Retirement Income Securities Act (ERISA). If you fail to do so, you are subject to personal liability and could put the company’s retirement plan at risk of losing its tax-free status. Personal liability applies even if you are unaware of your status as a plan fiduciary.
Does it apply to you?
- Business Owners
- Corporate Executives
- Plan Administrators
- Benefits Consultants
- Investment Advisors
With the increase in lawsuits and investigations related to employer-provided retirement plans, fiduciaries are a primary target. The success of these lawsuits implies that fiduciaries will remain in the cross-hairs for some time to come.
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How can you mitigate your potential liability?
Companies, both large and small, can provide All About Money® as an employee benefit to help meet regulations associated with ERISA 404(c), a topic of paramount importance in today's corporate environment. Offering All About Money® as a benefit also addresses the growing demand from employees for comprehensive financial planning services.
Corporate executives have long been targeted clientele by financial advisors. As a result, an abundance of financial products and services are available for them. But what about their rank-and-file employees? Unfortunately, they are often ignored by the financial services industry. All About Money® was designed to meet this specific need.
What is the Employment Retirement Income Securities Act (ERISA)?
Section 404(c) of ERISA permits retirement plans to transfer the responsibility -— and the liability -— for selecting among the investment options in a 401(k) plan (or other participant-directed defined contribution plan) to participants if the participant actually directs the investment of his or her account, and the plan satisfies the requirements of ERISA 404(c) regulations. However, under ERISA 404(c), employers always retain fiduciary responsibility for their selection of the plan's investment options. Consequently, employers who offer company stock as an investment option need to be particularly mindful of how they treat their own stock as an investment option.
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An HR professional who is a fiduciary of an employee benefit plan subject to ERISA has a personal liability if he or she breaches his or her fiduciary duties to the plan or plan participants, or if the HR professional knowingly allows any other plan fiduciary to breach his or her fiduciary duty. Personal liability attaches even if the HR professional is unaware of his or her status as a plan fiduciary.
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● Financial Education
ERISA 404(c) regulations do not specifically require employers to provide either investment education or investment advice to retirement plan participants; they must only provide “information sufficient for participants to make informed decisions about investment alternatives under the plan.” This ambiguous wording has caused much concern among employers, who fear their actions might be viewed by the Department of Labor as providing “investment advice.” If investment losses were to result from such advice, employers could be held liable as a breach of fiduciary duty. In response, the Department of Labor (DOL) issued Interpretive
Bulletin 96-1: Investment Education, which identifies four types of information or materials that would not be viewed by the DOL as rendering investment advice:
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While 404(c) regulations do not specifically require employers to provide either investment education or investment advice, the DOL has suggested that it is practically and legally advisable to provide at least investment education.
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● Investment Advice
In an effort to encourage employers and 401(k) plan providers to expand their provisions of investment advice, the Pension Protection Act of 2006 includes a specific exemption for the provision of investment advice to participants by providers and allows the provider to be compensated for providing the advice. Under the “eligible investment advice arrangement,” the providers’ fees may not vary depending on the investment chosen by the participant – OR – the advice must be provided through a qualifying computer model.`
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By size, this table shows organizations that offered financial and compensation benefits in 2008:
Category |
Overall (Employees) |
Small |
Medium (100 - 499) |
Large (>500) |
| General Courses on Financial Planning | 23% |
14% |
19% |
30% |
| Retirement Planning Services | 38% |
32% |
38% |
41% |
| Individual Investment Advice | 40% |
37% |
42% |
41% |
| Credit Counseling Services | 13% |
8% |
13% |
15% |
| Defined Contribution Retirement Plan | 84% |
82% |
83% |
85% |
| Automatic Enrollment | 32% |
22% |
31% |
39% |
| Defined Benefit Retirement Plan | 33% |
15% |
31% |
46% |
Source: SHRM Research, June 2008 (975 respondents)
Category |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
| General Courses on Financial Planning | 27% |
29% |
27% |
41% |
28% |
23% |
| Retirement Planning Services | - |
35% |
38% |
52% |
37% |
38% |
| Individual Investment Advice | 30% |
29% |
33% |
48% |
42% |
40% |
| Credit Counseling Services | - |
- |
- |
- |
- |
13% |
| Defined Contribution Retirement Plan | 75% |
77% |
81% |
81% |
83% |
84% |
| Automatic Enrollment | - |
- |
30% |
30% |
32% |
32% |
| Defined Benefit Retirement Plan | 42% |
44% |
39% |
48% |
40% |
33% |
This table shows the organizations that offered these benefits from 2003 to 2008:
- Basic information about the plan, benefit options under the plan, and available investment options.
- General financial and investment information.
- Asset allocation models and how they affect age, income and non-plan investment groupings.
- Interactive investment materials such as questionnaires and software that enables participants to estimate future retirement income needs and assess the impact of different asset allocations.