For years, Roland|Criss has been advising its clients on the importance of identifying and reducing the conflicts of interest that have become an inherent part of the retirement plan landscape. We have found that some pension consultants, investment firms, recordkeepers, and directed trustees fall into a category of providers that tend to wear multiple hats and perform multiple services for Plan sponsors, all the while promoting their "co-fiduciary" status. Far from independent, they expose Plan sponsors to a grave risk.

The Department of Labor's new Regulation 408(b)(2), which is expected to be effective on January 1, 2009, makes disclosure of conflicts of interest a legal mandate. On June 19, 2008 the U.S. Supreme Court sent out its own red flag in the monumental decision Metropolitan Life Insurance Company et. al. v. Glenn.

The MetLife decision goes beyond the DOL's mandate. The precedent that it set means that mere disclosure of conflicts of interest will not save a Plan sponsor or its officials from substantial liability.

The Supreme Court's decision addressed the standards for managing conflicts of interest for Plan sponsors and the consequences to a Plan's fiduciaries if they allow their Plan's vendors to engage in conflicts of interest. The decision will have repercussions in the Pension and Health and Welfare industry for years to come. How far down the food chain its effect will travel is not known, but as the news broadcasters say, "here is what we do know:"

• Any Plan official that allows vendors to provide "other services", that is services other than a single category of deliverables, places their Plan and himself/herself at risk.
• Plan officials cannot waive conflicts of interest.
• The way to avoid conflicts of interest liability is to require service providers to do only one thing.

Here is a word of wisdom from the Supreme Court's Justices; "Conflict of interest is a real or seeming incompatibility between one's private interests and one's public or fiduciary duties." Notice the implication that the appearance of a conflict of interest may have nearly as serious consequences as a "real" conflict.

How to Fix Your Plan's Conflicts of interest

The Fiduciary Standard of Excellence, which is substantiated by the Employee Retirement Income Security Act ("ERISA") requires of Plan sponsors; "Service agreements and contracts are in writing, and do not contain provisions that conflict with fiduciary standards of care." ERISA's intent, as echoed in the MetLife decision, is that Plan officials are required to promote accuracy and reduce bias in the handling of employees' assets.

Examples of how to reduce your exposure to conflict of interest risk include;

• commission an independent assessment of your Plan's investment conflicts of interest;
• use investment firms and recordkeepers that are CEFEX certified;
• restrict investment advisors to the monitoring of investments;
• make actuaries be just actuaries;
• require that insurance agents only sell insurance;
• insist that your recordkeeper only performs recordkeeping activities;
• be sure that your Plan's directed trustee, if it uses one, is not affiliated with another service provider employed by your Plan;
• obtain guidance and monitoring on fiduciary practices from a service provider who does nothing else.

In other words investment firms, consultants, insurance agents, directed trustees, and recordkeepers must wear one hat and one hat only. The MetLife case gives attorneys and the courts a foundation on which to pursue claims against Plan sponsors that until recently were hard to win.

The solution: Find out where conflicts of interest between your Plan and its service providers exist, (get independent help) develop a program to eliminate conflicts, and take the action needed to see the program to completion.

Roland|Criss offers investment conflicts of interest assessments. Learn more about how an assessment can improve your retirement plan's safety at www.rolandcriss.com.

Learn about CEFEX certified investment firms and recordkeepers at www.rolandcriss.com.

Roland|Criss is the nation's leading provider of risk management solutions to retirement plan sponsors. Roland|Criss is also the manager of certification assessments of investment advisors, investment managers, and recordkeepers for CEFEX and ASPPA. Roland|Criss does not sell investment products or manage retirement plan assets. It does not offer recordkeeping, administration, or custodian services to pension plans. It specializes in assessments and certifications of plan sponsors and service providers' practices against a defined standard of excellence.

Roland|Criss authored the information contained in this briefing. Its focus is on issues facing executives who serve defined contribution and defined benefit plans. It was released as a complimentary service. While Roland|Criss evaluated the material contained in this briefing for its interest to our readers, it does not endorse, and hereby disclaims, any and all responsibility or liability for the applicability to a reader's situation, completeness, or legality of the material. The reader should rely on this material only after an independent review of its completeness, accuracy, and timeliness. The publisher of the content has copyrighted this material.