Retirement Plan Investment Programs Harbor Newly Revealed Risks

Tip for January 2017


Widespread conflicts of interest and overpricing by many investment firms that serve 401(k) and 403(b) plans have been uncovered by the U.S. Department of Labor (“DOL”). Many executives that manage those types of plans are understandably concerned. Maybe you are, too.

The DOL’s Conflict of Interest; Investment Advice Rule attacks the practices of investment advisors and investment program providers who conceal their conflicts of interest that result in excessive fees for participants in ERISA qualified retirement plans.

The conflicts of interest cause participants to overpay for investment related services, which reduces their net investment returns and exposes their employers to fines and class action lawsuits. The DOL points out that the organizations that sponsor the plans, not the investment firms, are accountable for any excessive fees paid from plan assets.

If you’re unsure of where your plan’s investment program aligns with the DOL’s revelations, here’s what to look for.


  • If your plan’s investments are provided by the plan’s recordkeeper or its affiliate, commission an independent risk management assessment and have it updated annually.

Service providers that offer a bundle of services under one roof such as investments, recordkeeping, and/or asset custody are the vendors in multiple lawsuits that have been filed against their plan sponsor clients. The lawsuits allege that executives that oversee the plans permitted excessive compensation to be paid to the plans’ vendors.

Colleges and universities are the latest targets of lawsuits alleging that their executives failed to control investment related fees in retirement plans that use bundled investment programs.

  • Ask your vendors to identify any affiliated businesses that offer any retirement plan related services.

Some investment firms are part of sophisticated business enterprises that receive fees for performing other services such as recordkeeping through companies that are affiliated with the investment provider. Such affiliated arrangements are breeding grounds for trouble. It’s vital to know how your plan’s vendors are related to each other and if any conflicts of interest exist that should be cured.

  • If you rely on a “fee benchmarking” report provided to you by a vendor be wary.

So-called benchmarking reports can be produced by vendors in ways that cleverly conceal excessive compensation. If a benchmarking report is not accompanied by a Vendor Value Index™ analysis then it has limited value and can be dangerously misleading.

  • Get help from a specialist in ERISA risk management to uncover any symptoms of trouble.

If your plan’s investment program is bundled with other services such as recordkeeping, symptoms of trouble may exist. There is a solution. It embraces governance, risk management, and compliance (“GRC”). Roland|Criss is a GRC specialist with a sole focus on the ERISA community.

Ask Roland|Criss

Since we do not sell investment or recordkeeping services, we are free to concentrate our experience and skills on the identification, assessment, and prioritization of fiduciary risks. To learn more about how to achieve confident assurance in your retirement plan’s risk management system contact us and talk with one of our experts.

Vendor Value Index is a trademark of Roland|Criss Fiduciary Services.

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