Navigating the Storm: Consequences for Plan Sponsors Who Ignore Retirement Plan Advisor Advice

In the complex landscape of retirement planning, plan sponsors hold a fiduciary duty to act in the best interest of their participants. Engaging with a knowledgeable retirement plan advisor is a significant step towards fulfilling these responsibilities. However, what happens when plan sponsors disregard the advice of their advisors and find themselves under the scrutiny of a Department of Labor (DOL) audit? This article explores the repercussions and the path forward.

Understanding the Role of a Retirement Plan Advisor

Retirement plan advisors provide crucial guidance to sponsors, ensuring compliance with regulations, optimizing plan performance, and safeguarding participant interests. Their advice is rooted in extensive regulatory knowledge and industry best practices, making it vital for plan sponsors aiming to maintain compliant and efficient plans.

Ignoring Advisor Advice: A Risky Proposition

When plan sponsors overlook their advisor’s recommendations, they expose themselves to several risks, including non-compliance with the Employee Retirement Income Security Act (ERISA), poor plan performance, and financial loss. Ignoring this guidance often results from a lack of understanding of the regulations or underestimating the potential consequences.

The DOL Audit: A Wake-Up Call

The Department of Labor conducts audits to ensure retirement plans comply with ERISA standards and other applicable regulations. These audits can be triggered by participant complaints, inconsistencies in Form 5500 filings, or random selection.

For plan sponsors who have dismissed their advisor’s advice, a DOL audit can uncover issues such as:

• Compliance Violations: Failing to adhere to plan documents, improper allocations, and other administrative oversights.
• Mismanagement of Funds: Poor asset allocation or investment decisions contrary to advisor recommendations.
• Inadequate Fee Structures: Unjustified or excessive fees that were not benchmarked against industry standards.
• Lack of Participant Education: Failure to provide necessary information and resources to plan participants.

Consequences of a DOL Audit

The consequences of a DOL audit can be severe and far-reaching:

• Fines and Penalties: Non-compliance can result in significant financial penalties, compounding already strained resources.
• Corrective Actions: Mandated adjustments to plan operations, potentially requiring costly reforms.
• Reputational Damage: News of an audit and its findings can harm an organization's reputation, affecting employee morale and trust.
• Increased Scrutiny: Subsequent audits become more likely, adding ongoing pressure and oversight.

Moving Forward: Lessons and Strategies

For plan sponsors facing a DOL audit or wanting to avoid one, the following strategies are crucial:

1. Engaged Compliance: Regularly review and update plan operations to align with current regulations and industry standards.
2. Proactive Communication: Maintain open communication with your retirement plan advisor to stay informed about necessary changes and updates.
3. Invest in Education: Educate plan participants about their benefits and the security measures in place to protect their interests.
4. Thorough Documentation: Keep detailed records of all plan-related activities and decisions to provide a clear audit trail.

Conclusion

Ignoring the advice of a retirement plan advisor can lead to serious repercussions, notably when faced with a DOL audit. It is imperative for plan sponsors to embrace the expertise of their advisors, ensuring their plans remain compliant, efficient, and beneficial to all stakeholders. By doing so, they safeguard their organization against audits and build a robust foundation for future growth and stability.

If you need help getting your company's retirement plan back on track, give our team a call at 210-998-5008. or email us at [email protected]. Gil is an award winning author and has helped his clients achieve success. He writes about his expertise in the employer plan space and is open as a speaker at events geared towards plansponsors.

Securities offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.