Attorney Jerry Schlichter is on a roll. The managing partner with St. Louis-based Schlichter, Bogard & Denton filed suit against Chevron Corp. last week, accusing the oil and gas giant of a fiduciary breach over fees charged in its 401(k) plan.
It’s just the latest plan sponsor to feel his wrath over a failure to put plan participants first. After extensive interviews with Schlichter, 401(k) Specialist narrowed it down to seven areas to keep plan sponsors (and 401(k) advisors) off of Schlichter’s radar.
1). Come clean – Engaged in revenue-sharing arrangements in the past? Whether the plan sponsor was in the loop or not, make them aware and make it right. The longer you sit on it, the more of a liability it becomes.
2). Small plans – Do not simply assume that smaller plans with few participants and fewer assets can somehow skate by. Jerry Schlichter said less-than-forthright practices by advisors on any plan level can easily be discovered, if not by multi-million dollar class action litigators, than by any number of rollover advisors, family lawyers and estate planning attorneys hired by participants.
3). Don’t wait to regulate – Just because it wasn’t specifically outlawed doesn’t mean it was right. Lawyers make very good livings at finding ERISA interpretations to fit their needs. If it doesn’t feel right, it probably isn’t. By the way, the Department of Labor happens to really like Schlichter.
4). Rebates – You can’t do it with insurance premiums, and you can’t do it with 401(k) fees. If you’re changing higher 401(k) fees in order to offer additional services to particularly large clients at a discount, you have a problem. Having 401(k) participants subsidize other business expenses is the quickest way to the inside of a courtroom.
5). Ignorance of the law – We all know ignorance doesn’t fly when someone breaks the law, and that applies to fiduciary duties as well. “These are practices beyond just being so-called asleep at the switch,” Schlichter emphasized. “This is deliberately benefitting from the employees’ retirement assets.” If your best defense is “it’s all so complicated,” exit the business now.
6). Full-time fiduciary – Related to the above, you can’t be half-in or half-out as a 401(k) advisor; there’s simply too much at stake for all involved. If you’re not the full-time expert, hire someone for your RIA that is.
7). Transparency – Don’t schedule quarterly meeting at 4:30 on Friday, Dec. 24. Make plan documents readily available and easy for all 401(k) plan stakeholders (participants, sponsors, advisors, auditors) to access. The more they know—and can do for themselves—the better.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
