Refocusing Your Retirement Plan

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Does your group’s retirement plan put your interests first? Making sure your plan’s trustee takes the role seriously and hires a fiduciary advisor is the first step to safeguarding your retirement.

Does your group’s retirement plan put your interests first? Making sure your plan’s trustee takes the role seriously and hires a fiduciary advisor is the first step to safeguarding your retirement.


If you are part of an independent emergency medicine group, you are probably contributing to your group’s retirement plan – typically a 401(k) profit sharing plan. Or you may be a physician partner in your group and have been designated as your group retirement plan’s trustee.

When was the last time, if ever, that you closely examined your group’s retirement plan? I’ve looked at many group retirement plans and have discovered that most of them are broken. That’s a shame given that for many emergency physicians your group’s plan is a large part of your overall retirement portfolio.

Most plan participants and trustees have no clue about the process for selecting investments in the plan, the role of various parties in administering and advising on the plan, or the fees associated with the plan. If you are a plan trustee, I bet you don’t know what your responsibilities are. Over the next few months I’m going to uncover the mistakes you’ve been making in your group retirement plan and what you can do to fix them.


Goals of a group retirement plan
The goals of a group retirement plan are simply to:

  • Ensure a successful long term investment experience for all plan participants
  • Maximize the chance of achieving every plan participant’s retirement goals
  • To determine whether your plan meets these two goals, ask yourself these two questions:
  • Are the plan design, features, and investment choices committed to these goals?
  • Are the outside parties involved in the plan and the way those parties are paid in line with these goals?

The focus should only be on the plan participants – in other words, you.

Defining the service providers
Lots of people have hands in your group’s retirement plan. You need to know who they are before figuring out whether your plan needs help. The main players include:

  • Plan trustees: Usually one or two physician partners in an independent group, they control and manage the assets of the plan
  • Financial advisors: Include either independent registered investment advisors, stockbrokers from large brokerage firms (called registered representatives), or insurance agents that sell group retirement plans
  • Third party administrators/recordkeepers: A company that administers the plan, designs the plan, provides the platform on which plan participants make investment choices, and report plan assets to the IRS
  • Custodian: The company where plan assets are kept
  • Mutual fund companies: The providers of the investment choices to the plan
  • Government: ERISA (Employee Retirement Income Security Act of 1974) is the law that sets the standards for retirement plans and the Department of Labor (DOL) enforces ERISA

Who are the fiduciaries?
Every plan will have at least one fiduciary starting with the plan trustees. According to ERISA the fiduciary responsibilities of plan trustees include:


  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents;
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

The duty of a plan trustee to act prudently is the central philosophy of ERISA, particularly as it relates to expertise in investing. As much as I highly regard my emergency physician colleagues, I think the vast majority of them lack this expertise. So ERISA allows a plan trustee to hire an outside entity such as a financial advisor to carry out certain investment functions such as selection of mutual funds and ongoing investment advice.

And that’s where things tend to fall apart in group retirement plans.

Plan trustee liability
While the plan trustee is a fiduciary, it is possible the plan trustee has hired a financial advisor who is not a fiduciary. In this case the financial advisor is not required to act in the best interests of the plan participants and is not held to the ERISA fiduciary responsibilities that plan trustees are held to. In other words, if the plan trustee hires a financial advisor who himself is not a fiduciary, then the plan trustee is still the responsible party for the choice of investments in the plan. The whole point of hiring an outside party to manage plan investments is to transfer part or all of that responsibility to that outside party.

Not hiring a fiduciary advisor to manage plan investments puts the plan trustee at risk since the DOL states that plan trustees “may be personally liable to restore any losses to the plan.” In other words, you as the plan trustee can be held liable for the investment choices selected in your group’s retirement plan even though you thought you outsourced that to a financial advisor. Think about this: you’re already subject to tremendous risk by seeing patients in the ED. Do you want to take on this additional liability and put your personal assets at greater risk?

Think this fiduciary duty doesn’t matter much? Just ask the employees of Walmart, who filed and won a $13.5 million class action lawsuit against Walmart last year claiming that Walmart breached its fiduciary duty to nearly 2 million current and past Walmart employees for using Merrill Lynch’s platform for its retirement plan.

First steps
Step one to creating a successful group retirement plan is to determine whether the service providers – including financial advisors – to your plan are fiduciaries. Many service providers verbally claim that they are fiduciaries when in fact they are not. Simply giving investment recommendations and providing a platform from which participants access investments does not mean that the service provider is a fiduciary as defined by ERISA. The implications here are huge.

Ask your service providers to state in writing if they are section 3(21) or section 3(38)ERISA fiduciaries. These are the sections which define the fiduciary role of financial advisors to your plan. As of last month the DOL made this a little easier for you since the DOL requires every service provider including financial advisors to deliver to you a brochure called the 408(b)(2) disclosure in which you will find out whether the advisor or any service provider is acting as a fiduciary. Be careful here. The rules state that if an advisor is not a fiduciary, the advisor will simply not mention it in the brochure but if he is a fiduciary then the disclosure form will specifically state so. Read this brochure in its entirety and find out the advisor’s fiduciary status.

As a plan trustee you should also have a written systematic process for documenting how you choose outside parties to service the plan, including financial advisors. So if you hire a non-fiduciary advisor you have to explain why a non-fiduciary advisor serves the best interests of plan participants over a fiduciary advisor. Remember that the liability falls only on you if you hire a non-fiduciary advisor. This is why having a fiduciary who shares in the liability is so important.

You must also have a detailed process explaining how and why you chose the specific investments in the plan and not other alternatives. I’ve found that most trustees don’t have any process or documentation. Try following that model when you see patients . . . and good luck in court.

And finally if you are a p
lan participant, you have a right to find out about this issue as well. Approach your plan trustee and have him/her show you the documented process for selecting the advisor to your plan. Read the 408(b)(2) disclosure yourself. If you determine your plan trustee hired a non-fiduciary advisor, ask him why.

Setu Mazumdar, MD practices EM and he is the president of Lotus Wealth Solutions in Atlanta, GA

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