It is natural to expect pension plan participants to seek financial advice concerning one of their largest financial assets. How can a financial advisor help provide financial advice and what responsibilities are owed according to the Employee Retirement Income Security Act of 1974 (ERISA) for their recommendations to pension plan participants. A financial advisor can provide pension plan participants with valuable financial planning guidance concerning their defined contribution retirement plans in three areas: 1) determine what participant contributions should make to meet their retirement income goals; 2) Recommend suitable investment allocations amongst the various investment options, over time, and; 3) taxation of withdrawals from the qualified pension plan, including premature withdrawals.
The advent of self-directed brokerage account options has provided pension plan participants with access to greater investment choices, including fee based investment advisory services. Employee Retirement Income Security Act of 1974 (ERISA) section 3(21), provides that when an individual pension plan participant hires an investment advisor, they are fiduciaries under ERISA section 3(21).
According to ERISA section 3(21), a fiduciary is a financial advisor who provides investment advice for a fee with respect to any investments of a pension plan. A fiduciary duty is owed to each pension plan participant by the investment advisor under the ERISA rules; if they exercise any authority or control over the management of the pension plan assets in return for a management fee. As a fiduciary, the investment advisor is responsible to:
- Understand pension laws and plan provisions;
- Diversify assets based on specific risk/return profile of client;
- Prepare investment policy statement;
- Select money managers and document due diligence;
- Control and account for investment expenses;
- Monitor the activities of money managers; and
- Avoid conflicts of interest and prohibited transactions.
True North Financial Advisors investment advisory services to pension plan participants and represents investment advisors who act as ERISA 3(21) fiduciaries when managing participant retirement plan assets through self-directed brokerage accounts held in defined contribution pension plans. Financial advisors owe a fiduciary duty to pension plan participants. Fee based investment advisory services include the establishment of a personalized investment policy statement that is based on the risk tolerance and investment time horizon of the pension plan participant. These investment advisory services are available through self-directed brokerage accounts for plan participants with pension assets held in defined contribution pension plans, including 457 deferred compensation plans and 401(k) plans.
