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Hancock Launches Fiduciary Warranty: Pledges to Return 401(k) Plan Losses, Pay Litigation Fees


John Hancock Retirement Plan Services, a full service provider to 401(k) plans headquartered in Boston, announced that it has created the retirement industry's first fiduciary standards warranty.

Most 401(k) providers are not plan fiduciaries, though they are guided by fiduciary principles, according to Paul Henry, director of strategic planning and market research at John Hancock Retirement Plan Services. Sometimes a plan sponsor will enter into an agreement with a third-party that acts in a fiduciary capacity with respect to selecting and monitoring a plan's investment lineup. This could be the plan provider, but that is fairly rare, he said.

"Plan sponsors are very interested in programs that will help them responsibly carry out their duties as fiduciaries. Recent research indicates that fiduciary concerns are No. 1 among plan sponsor priorities," Henry said. "Specifically, their concerns focus on the suitability of the investment alternatives they make available to their employees."

Plan sponsors have a greater awareness than they have ever had before of their personal accountability for the fiduciary decisions they make. As a leading 401(k) provider in the small and mid-size plan markets, serving more than 30,000 plans, Hancock felt it was important to take a leadership role in helping plan sponsors, Henry said.

The warranty will guarantee plan participants that the plan's investment selection and monitoring process adheres to fiduciary standards that have been set by the Employee Retirement Income Security Act (ERISA). Hancock pledges to return plan losses and at the same time pay lawsuit fees related to the suitability of this process or the investment options themselves.

"Should there be a claim against a plan's fiduciary responsibility relating to the suitability of our investment process or the suitability of the investment options we make available, we will make the plan whole for any loss not reimbursed by insurance, and we will bear all reasonable costs of defending a claim that is subject to our warranty," Henry assured.

The warranty is a free offer for plan sponsors, which is what makes it unique in the industry, he said.

The warranty not only helps employers meet fiduciary standards for fund selection, but it also monitors the types of investments that are offered to participants on an ongoing basis.

In order for a plan to qualify for the John Hancock fiduciary standards warranty, it must have at least one investment option in designated asset classes and lifestyle portfolios covering five categories of risk. The program will cover all clients, new and old, as long as they meet the requirements.

The warranty guarantees three areas of fiduciary responsibility. First, that Hancock has selected and continues to monitor funds to ensure they satisfy ERISA prudence requirements. "ERISA doesn't specify that an individual fund must meet certain requirements, but it does require that the plan fiduciary use a prudent process when deciding what funds to include on the plan's investment menu," Henry said.

"In our warranty, we state that our investment selection and monitoring process satisfies ERISA standards. Second, we also state that our investment lineup is appropriate for long-term investors such as 401(k) participants," Henry said . "This is important because many of the programs we see in the market put that burden on the plan sponsor."

Finally, he said, the Hancock warranty guarantees plan sponsors that their plans offer a broad range of investment alternatives, as prescribed under ERISA.

"Simply put, plan sponsors who want the safe harbor protections available under ERISA section 404(c) must, among other things, make a broad range of investments available to their participants," Henry said. "Our warranty eliminates the guesswork on what they need to do to satisfy the broad range requirement."

"We recognize that fund selection and monitoring is an important part of the due diligence process," said Susan Bellingham, senior vice president for marketing development of retirement plan services at John Hancock. "We are committed to helping employers meet the highest fiduciary standards for their 401(k) participants."

The fiduciary standards warranty applies to all the funds on the investment platform, not just those managed by John Hancock. Moreover, the independent investment advisors in a plan may continue to add considerable value to the investment selection and monitoring process through the resources that they provide to plan sponsors, Henry said.

John Hancock's investment selection strategy and monitoring process received Standard & Poor's Quality Evaluation Seal two years in a row.

Hancock plans to market this program through independent financial advisers and third-party administrators.

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