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Retirement Plan Governance in a Fee Disclosure World


In providing an employee retirement plan, employers and plan fiduciaries assume a number of responsibilities. An effective and meaningful governance process must be developed to ensure best practices …

In providing an employee retirement plan, employers and plan fiduciaries assume a number of responsibilities. An effective and meaningful governance process must be developed to ensure best practices are followed in maintaining the plan. This article discusses the three key things that this process should address.

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  • 1. I D E A S T O H E L PG R O W Y O U RB U S I N E S S©Copyright2013.CBIZ,Inc.NYSEListed:CBZ.Allrightsreserved.To attract and retain quality employees, employersmust provide a benefits package that includes aquality retirement plan. In providing this benefit,employers and plan fiduciaries assume a number ofresponsibilities. Although professionals may be retained toperform the duties associated with offering a retirementplan, an effective and meaningful governance processmust be developed to ensure best practices are followedin maintaining the plan. This will allow plan sponsors tomanage the legal and financial risks while delivering a high-quality retirement program for plan participants.An effective plan governance process will provide foroversight protocols, identify the plan fiduciaries, developmonitoring processes and document plan decisions. As apractical matter, the governance process should address1) plan compliance issues; 2) management of plan assets;and 3) administrative concerns.Plan ComplianceERISA and the Internal Revenue Code (IRC) impose acompliance burden on sponsors of tax-qualified retirementplans. In order to meet the rules set by these statutes, agovernance plan should address the following:• Plan document. This instrument details the termsof the retirement program and needs to be updatedperiodically to reflect discretionary changes made bythe plan sponsor or regulatory changes required by law.• Governmental filings. These filings include Form5500 which reports financial, investment andoperational information about the plan; Forms 1096and 1099R which report distribution information; andany other forms required by regulatory agencies.• Testing. Annually, a tax-qualified retirement planmust demonstrate that the plan does not excludea disproportionate number of lower-paid employees(generally making less than $115,000) or providebenefits that discriminate in favor of higher-paidemployees. If the plan sponsor is under common controlwith other entities, these tests must be based on theemployees of all entities under common control.• Operational compliance. It is important to monitor thatthe plan’s operation is consistent with plan documentprovisions.Plan AssetsFiduciaries responsible for the management of planassets are subject to the prudence standard, whichrequires a fiduciary to act with the care, skill and diligencethat would be exercised by a prudent person familiar withthe matter and acting under similar circumstances. Inmeeting this standard, fiduciaries must:• ensure plan assets are diversified so as tominimize the risk of large losses, unless under thecircumstances it is clearly prudent not todo so• comply with the plan’s investment policy statement• monitor the reasonableness of fees charged by serviceproviders• ensure that the plan has sufficient liquidity• act in the best interest of the plan participantsAdministrative IssuesFiduciaries must make sure all of the plan’srecordkeeping/administrative issues are addressed.Regulatory agencies, participants, the courts or otherentities may have a legal right to access plan records.Therefore, it is incumbent on the plan administrator tomaintain historical records that include copies of plandocuments, participant notices, government filings,enrollment forms, beneficiary designation forms, censusdata and evidence of required insurance coverage.Without an effective governing process, it will bevirtually impossible to fulfill all of the duties associated withmaintaining a tax-qualified retirement plan. Hiring qualifiedprofessionals to assume all or some of the aforementionedduties does not relieve the plan sponsor of their duties. Adocumented process must be developed for selecting theseprofessionals and monitoring their performance. our business is growing yoursEmployee BenefitsRetirement Plan Governance in a Fee Disclosure WorldArticle reprinted from Summer 2013GROWTHBIZS T R A T E G I E SBILL KARBONCBIZ Insurance Services, Inc.Lawrenceville, NJ609.895.5332 •