Employment Law Tip: Shopping for a Retirement Plan Consultant

Under federal employee benefits law, fiduciaries of employee benefit plans must administer and manage their plans prudently and in the interest of the plan’s participants and beneficiaries. In carrying out these important duties, plan fiduciaries often rely heavily on pension consultants and other professionals for help. But sometimes these consultants fail to disclose potential conflicts of interest that can affect the objectivity of the advice they are providing to their pension plan clients, and violate federal law.

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If you’re shopping around for a pension consultant, or just checking up on your current consultant, here’s a list of 10 questions, courtesy of the U.S. Department of Labor’s Employee Benefits Security Administration, you can ask to find out whether there are any conflicts of interest that could affect the advice you and your employees are getting:

1. Are you registered with the SEC or a state securities regulator as an investment adviser? If so, have you provided me with all the disclosures required under those laws?
2. Do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan? If so, describe those relationships.
3. Do you or a related company receive any payments from money managers you recommend, consider for recommendation, or otherwise mention to the plan for our consideration? If so, what is the extent of these payments in relation to your other income (revenue)?
4. Do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships from being a factor when you provide advice to your clients?
5. If you allow plans to pay your consulting fees using the plan’s brokerage commissions, do you monitor the amount of commissions paid and alert plans when consulting fees have been paid in full? If not, how can a plan make sure it does not over-pay its consulting fees?
6. If you allow plans to pay your consulting fees using the plan’s brokerage commissions, what steps do you take to ensure that the plan receives best execution for its securities trades?
7. Do you have any arrangements with broker-dealers under which you or a related company will benefit if money managers place trades for their clients with such broker-dealers?
8. If you are hired, will you acknowledge in writing that you have a fiduciary obligation as an investment adviser to the plan while providing the consulting services we are seeking?
9. Do you consider yourself a fiduciary under ERISA with respect to the recommendations you provide the plan?
10. What percentage of your plan clients use money managers, investment funds, brokerage services or other service providers from whom you receive fees?

Additional Resources:

U.S. Dept. of Labor, Employee Benefits Security Administration Fact Sheet, Selecting and Monitoring Pension Consultants—Tips for Plan Fiduciaries