Years ago, when company stock in 401(k) plans was a hot topic, I visited a publicly traded bank in western Pennsylvania that was facing a dilemma. Senior executives, also members of their 401(k) retirement committee, knew there was a big announcement that would negatively impact the bank's stock price. As ERISA fiduciaries, they asked me if they should sell shares in the plan before the announcement and, if they do, if it would be considered insider trading.
Although I have a law degree, I'm not an expert in these areas, so I shrugged it off, but it highlighted the inherent conflict within defined contribution plans. ERISA trustees must put the interests of participants first, but that does not mean they must ignore what is best for the company as well as the persons responsible for administering the plan.
The conflict in our country and in the world seems to be reaching a boiling point as we approach the most important election in our nation's history. We are more divided than ever since the Civil War, as conflicts in Ukraine and the Middle East continue unabated. Similarly, as the convergence of wealth, retirement and benefits gains momentumthus increasing the potential for conflict with providers, advisors, plan sponsors, and brokers/dealers on different sides of certain issues.
The fundamental driver of conflict within DC plans is the fact that buyers are not the primary users. Obviously, plan sponsors shouldn't give the recordkeeping mandate to their bank in exchange for better interest rates on their line of credit, but there are more subtle issues like using dated funds. intended by that provider to reduce recordkeeping costs.
There is a potential conflict between the agencies that oversee DC advisors and plans with the DOL taking a more proactive role in prescribing conduct as it has in its latest iteration of the fiduciary rule, trying to protect unsophisticated investors especially when they decide whether to rollover their DC accounts, while the SEC leans more toward disclosure.
As convergence heats up, fueled in part by falling recordkeeping and advisory fees which can reach zero, all eyes turn to participant services that could pit the record holder against the advisor who brought them the plan. And plan sponsors may need to arbitrate by weighing who is best qualified to help their employees while protecting data privacy.
Retirement plan advisors are looking for ways to increase their income and differentiate themselves from Triple F advisors. To accomplish this, they are either creating their own products and services or representing those that charge additional fees. As a result, they find themselves in the dual role of being both a vendor and a co-fiduciary to plan sponsor clients who expect them to be objective third-party overseers of other non-fiduciary vendors. And their broker/dealers may want their advisors to sell certain products and services that they benefit from.
Many registrants, most of whom are not fiduciaries but must disclose all fees charged to the plan, are receiving up to seven-figure platform-level payments from asset managers, much of which is difficult to quantify. from the plan and likely not. listed on forms 408(b)(2).
And as we wring our hands about how to improve the DC system, increase access, and help more workers with their financial issues by integrating all benefits and providing retirement income solutions, with some experts suggesting that we script the entire systemthe US retirement scheme with over $24 trillion in participant-directed assets and $38.4 trillion overall, is the envy of the world.
Trying to eliminate all conflict is futile and probably not worth the effort with all good intentions aside. So the issue is not how to eliminate conflict, but how to better manage it by being transparent and suppressing the most egregious cases acting as responsible guardians. It is possible to put the interests of others first, which is what customers expectas it progresses.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.