Case Study: ERISA Fiduciary
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SITUATION: An orthodontist founded his own dental practice in 2004, and soon after, established a 401k profit sharing plan. Over time he started to learn about ERISA fiduciary responsibilities and soon realized that he may not have been fulfilling all duties as the plan sponsor/administrator of his 10-participant retirement plan.
He decided to identify an independent investment advisor that could help him structure his 401k profit sharing to be ERISA-compliant. A retired dentist (a client of Furuya & Co.) referred the orthodontist, to Furuya &Co.
SOLUTION: At the initial consultation, Furuya & Co. informed the oral surgeon about his options to minimize his personal liability as an ERISA fiduciary. The orthodontist decided he wanted Furuya & Co. to be a named ERISA fiduciary (ERISA 3(28) investment manager) implementing a prudent 401k profit sharing platform and researching/selecting/monitoring/replacing investment selections.
Furuya & Co. agreed to take on this assignment and acknowledged, in writing, its ERISA 3(38) investment management status for the doctor’s 401k Profit Sharing plan.
ACTION: Furuya & Co. reviewed and evaluated the existing 401k profit sharing plan platform and determined that the broker of record for the doctor’s retirement plan deployed a plan that was laden with upfront commissions, trading costs, 12-b1 fees and hidden expenses. The custodial expenses, recordkeeping fees and broker commissions drove annual costs up to 2.5%.
Furuya & Co. transitioned the retirement plan to a more-transparent, unbundled platform that offered low asset-based fees (and no commissions) paid to the recordkeeper and a third-party custodian. And furthermore, non-ERISA investment broker/financial advisor/financial planner were not required and thus not paid for non-value services.
The best feature of the platform is the unlimited number of mutual fund offerings that included institutional-share class mutual funds and commission-free 12b-1 mutual funds. As such, we offered lower-cost, higher-performing mutual funds that were only available for 401k plans with significantly higher asset size.
Our firm devised an investment policy statement that explain the investment selection/monitoring/replacement process and performed annual audits on the investment vehicles to comply with ERISA.
RESULTS:. The client got immediate results.
We reduced annual fees by changing from commission-laden mutual funds to institutional-class, commission-free mutual funds. Transitioning the investment selections from the retail share class mutual funds to the institutional-class mutual funds gave the plan participants up to a 2.5% increase in account returns (due to the elimination of annual fees paid).
But more importantly, the doctor showed the US Department of Labor, that he is taking steps towards an ERISA-compliant retirement plan.
The case study presented is a real description of an actual client relationship. We have protected the identity of the client and their occupation. Given that many of our clients experience similar life events, the case study is designed to depict the value proposition Furuya & Co. brings to the table. Each client we work with is unique. There is no “cookie cutter” set of solutions. We bring our full set of resources to the table to solve, educate, implement, and monitor.