The other day I wrote about the duty of a fiduciary to monitor service providers in the context of 401(k) plan sponsors not being concerned about the consolidation service of providers. We also hear a lot about the duty of a fiduciary to not just select service providers prudently, but to also monitor them. And this advice is not just yadda yadda, because there is a real world aspect to it. And if you’re wondering exactly where the rubber does hit the road, here’s a real world situation to keep in mind.
An article in yesterday’s on-line edition of the North Hampton, Massachusetts Eagle-Tribune about a businessman who must repay $100,000 reports that an owner of a local architectural firm agreed to pay $100,000 to his profit-sharing plan as part of a settlement with the U.S. Department of Labor (DOL). The DOL accused the owner of failing to monitor a financial company that stole over $500,000 from the 11 participants in the profit sharing plan. The settlement with the DOL also included the owner paying an additional $10,000 fine and agreeing never to manage any other retirement plan himself.
And how exactly did the investment adviser now serving a 11-year prison sentence for the embezzlement of the funds get nabbed? The Eagle Tribune’s story said that according to a published report at the time the embezzlement scheme was only discovered after the adviser sent audiotape confessions to his wife, his mother, and the Exchange Commission, among others, before trying to kill himself.
Situations like this are fortunately rare, but stuff does happen. What should the business owner have done? I’m going to save that topic for another time in the very near future and discuss using procedural prudence in the selection and monitoring of retirement plan providers.
Picture above, in case you wondered exactly where the rubber meets the road…, by Fubuki via Flickr.
HT to Dave Baker at BenefitsLink for pointing me to this story.