Last week on The Fiduciary Advisor blog we recapped our fiduciary financial planning educational webinar series to date for participants in the retirement plans of our plan sponsor clients.
Now we turn our focus to plan sponsors themselves, and the series we launched last month with the webinar Fiduciary Risks: A Retirement Plan Checkup. Retirement plan sponsors are often exposed to more fiduciary risk than they realize. Did you know 33% of plan sponsors do not even realize they are fiduciaries? Or that 64% of all Department of Labor audited plans were fined – averaging $200,000 per plan?
Let’s recap 9 steps plan sponsors can take to minimize fiduciary risk:
- Review. Completely review and organize the plan as it is today — from plan related documents, plan administration and investment selection processes to monitoring plan investments, investment policy, compliance testing results, participant communication, service providers and fees.
- Assemble a team. Now that you’ve organized and reviewed your plan, it’s important to have the right players providing input. The retirement team should include both the company’s retirement plan committee as well as outside professionals. Those might include an ERISA attorney, a third party administrator, an actuary and an independent fiduciary financial advisor to lead the team.
- Delegate. While you can’t delegate away fiduciary responsibilities, you can reduce your risks. A discretionary trustee and investment manager both assume fiduciary responsibility for the investment decisions that they make. Also, as a plan sponsor, you can follow 404(c) compliance guidance and adopt a Qualified Default Investment Alternative (QDIA). Most plan sponsors would be well advised to, at the very least, hire an independent financial advisor to assist them in selecting, monitoring and replacing investment options.
- Formalize the team. Plan sponsors should should consider formalizing the team by adopting a charter. The charter affirms the scope of delegated authority and specific responsibilities of each role. It also states how often the committee intends to meet. We recommend annual meetings at a minimum. If the committee has responsibility for the investment of plan assets, it should consider adopting an investment policy statement. It is critical to understand that team members who have the ability to make plan decisions are fiduciaries — and held liable for those actions.
- Document everything. One of the best ways to approach your fiduciary responsibilities is to document everything. For starters, taking meeting minutes will help document and demonstrate the process followed. A documented decision process might be more important than the decisions themselves. Document the process and document that you adhered to it — that will go a long way toward reducing your fiduciary risks.
- Monitor. Now that your retirement plan information is organized and your retirement team is in place, it’s time to define how you will monitor it. We discussed key retirement plan checkup questions that should be regularly monitored and evaluated across five main areas — retirement readiness, plan administration, costs, investments and service providers.
- Evaluate. Dive deeper and evaluate each area of the retirement plan checkup. For example, look at the health of your plan administration with diagnostic questions. Are you running the plan according to the document? Is the plan design meeting the needs of your company? If it is, great. If you’re unsure, ask your independent advisor for an analysis or schedule a meeting to talk about possible updates and ideas. We strongly recommend watching the webinar and considering all the points we discussed in each area.
- Focus on outcomes. There have been hundreds of articles written on fiduciary responsibility, but ultimately what is the point of a company sponsored retirement plan? The point of a company-sponsored retirement plan is to help your employees retire. Focus on outcomes — specifically preparing your employees. Create an education policy statement to help your retirement team understand how they should be educating employees. Host regular educational sessions that allow employees to ask questions. Lastly, track participant progress over time — adjusting education and plan design for optimal retirement readiness.
- Repeat the process. Now that we understand the process, this last step is of the utmost importance. ERISA is about following a consistent, prudent process. It’s not a one and done action. So keep repeating the process for plan compliance success. By continuing to review, monitor, evaluate and document your what you are doing — you will help ensure that you are fulfilling your fiduciary responsibility.
To better understand these risks, we encourage you to watch our fiduciary risks webinar if you haven’t already. This will help you define clear next steps for assessing the state of retirement at your company and map out a path forward. And, as always, please contact us to learn more.
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