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From the Editor's Desk

Fiduciary liability has become a hot topic recently, and it is crucial for plan sponsors and financial professionals to be well informed on this topic. This issue of our newsletter provides information to help financial professionals determine if they are taking on the role of a fiduciary, knowingly or not. The newsletter also includes an article entitled "What Can Advisers Do To Minimize Their Fiduciary Liability?" As part of our regular content, we discuss what occurred in the markets for the third quarter of 2005 and comment on our capital market expectations for the fourth quarter of 2005.

What Can Advisers Do to Minimize their Fiduciary Liability?

It's always someone else's fault if things don't go as planned. Spill a cup of hot coffee in your lap or damage your car by driving down a road marked "closed" and of course it's not your fault, it's someone else's. Unfortunately, today's highly litigious society makes it too easy to duck responsibility for one's actions, and that of course extends to the retirement industry.

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Are You a Fiduciary?

Financial professionals who work with plan sponsors may unknowingly be acting as a plan fiduciary, and thus violating ERISA regulations, according to some ERISA experts. Of course, there are financial professionals who are well aware of this role as they service clients and accept the associated responsibilities, but many other financial professionals may be acting in a fiduciary role without realizing it or the significant liability implications involved.

Confusion arises because the ERISA identification of a fiduciary is two-fold. A "named" fiduciary is identified by the plan and is recorded as such in the plan documents. On the other hand, a "functional" fiduciary is determined by the nature of the relationship the financial professional has with a plan, the types of services provided, or the degree of control exercised with respect to the plan. This is the area of great uncertainty and potential liability for many financial professionals.

Who is a Fiduciary Under ERISA?

A fiduciary under ERISA is any person who:

  • Exercises any discretionary authority or control over the plan's management;
  • Exercises any authority or control over the management or disposition of the plan's assets;
  • Renders investment advice for a fee or other compensation with respect to the plan funds or property; or
  • Has any discretionary authority or responsibility for the plan's administration.

If a financial professional determines that they are indeed acting as a fiduciary, there are many duties and responsibilities that must be immediately addressed in order to mitigate liability exposures. For more information on this subject, LTSave suggests that you visit U.S. Department of Labor: Fiduciary Responsibilities.


Market Update: Third Quarter 2005

There was an abundance of negative news during the quarter, including disastrous hurricanes and damage on the Gulf Coast, rising oil prices, continued Fed tightening, and announcements of corporate bankruptcies. Despite these events, the equity markets produced positive results for the quarter.

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Capital Market Outlook: Fourth Quarter

It always bears repeating that LTSave bases its portfolio advice on long-term expectations for the financial markets, not on what it might expect over short periods, like the coming month, or quarter, or even year. Most of LTSave's clients are investing for longer periods. Even when the client is just one or two years from retirement, the best starting point for developing an outlook for the portfolio is still the long-term perspective.

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