Know Your Fiduciary Obligations as a Retirement Plan Sponsor


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Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas Running a business involves overseeing multiple possibilities and outcomes. One potential situation that can easily be overlooked in the urgency of daily activities may include your fiduciary obligations to your employees who participate in your retirement plan. Here are some important reminders to help you maintain focus on tasks which may not seem urgent until they become serious due to a lack of attention.

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Know Your Fiduciary Obligations as a Retirement Plan Sponsor

  1. 1. Toll Free: 877.880.4477 Phone: 281.880.6525 Know Your Fiduciary Obligations as a Retirement Plan Sponsor
  2. 2. The first thing you need to know is -- do you qualify as a fiduciary? The answer should be clear from your plan document, which spells out plan governance. There is a "named fiduciary," which may simply be a title -- such as CEO. A plan trustee is a fiduciary, and you probably have a retirement plan committee, the members of which may serve in a fiduciary capacity. » » » This role is also determined by function. You may be what is known as a "functional" fiduciary if you make key decisions about the basic operation of the plan, like vendor selection. But this doesn't mean every choice you make on behalf of the plan is considered fiduciary. Some decisions fall under what is called the "business decision exemption," for example, plan design, or the choice to terminate a plan. Often small businesses set up their 401(k) plans using a bundled provider "but don't know what questions to ask," says Christopher Carousa, principal contributor to the Fiduciary News website and author of the book, 401(k) Fiduciary Solutions."The amount of effort it takes is not insignificant" at the front end, and the process doesn't stop there.
  3. 3. Guiding Principles Fiduciaries can be held personally liable for breaching their fiduciary duties. The broadly defined obligations of a fiduciary are spelled out by the Department of Labor (DOL) as follows. They must:  Act solely in the interest of the participants and their beneficiaries;  Act for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;  Carry out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;  Follow the plan documents; and  Diversify plan investments.
  4. 4. A myriad of DOL regulations spell out specific fiduciary obligations which fall under these broad headings, such as the requirement specifying the maximum time between when dollars are deducted from an employee's paycheck and when those funds are deposited into the plan. (For example, for plans with less than 100 participants, the maximum interval is one week.)
  5. 5. Focus on Plan Expenses Recently, the DOL has placed much emphasis on the cost of plan services, particularly asset management and recordkeeping fees. This is a hot button issue for the DOL and has already become a source of litigation. The 408(b)(2) regulations took effect last year, requiring plan vendors to furnish statements detailing their charges and investment performance. These regulations were intended to better facilitate your fiduciary obligation to evaluate and monitor vendors on a regular basis. Ignore them at your peril. Ensuring the proper dissemination of the cost and performance disclosures for participants under the related 401(a) regulations is another specifically identified fiduciary obligation for plan sponsors. There are ways to reduce your fiduciary liability, beyond simply taking your role seriously and buying fiduciary liability insurance. One way is to take advantage of various "safe harbor" regulations, such as those spelling out specific investments which qualify as "qualified default investment options." The other way involves process and is described below. » » » »
  6. 6. Process vs. Results The emphasis of fiduciary responsibilities for employers is "the process used to carry out plan functions, rather than simply the end results," according to the DOL. » » » This means the basis for important decisions must be documented when those decisions were made. Choosing a vendor whose fees are above average may not pose a problem if the rationale behind it makes sense and safeguards employees' interests. Criteria for selecting and maintaining a relationship with a vendor would include all the contents of the statements provided by vendors under the 408(b)(2) regulations.
  7. 7. Here are a few basic pointers for fiduciaries from the DOL, to assist in evaluating plan fees and expenses. Begin by establishing an objective process to aid in decision making. Before negotiating with prospective providers, map out the services you want from a service provider (such as legal, accounting, trustee/custodian, recordkeeping, investment management, investment education or advice). Determine the level of responsibility you want the prospective service provider to assume, including extras or customized services and optional features, for example, loans, Internet trading, and telephone transfers. 1 2 3
  8. 8. Even if you delegate some of your fiduciary responsibility by hiring an expert consultant to help you with some tasks, don't forget you are held responsible for the selection of the consultant. Therefore, just as with the criteria established for selecting and dealing with vendors, you need to document the process you used for choosing the consultant in case you are asked to justify your decision later.
  9. 9. 14550 Torrey Chase Blvd., Ste. 360 Houston, TX 77014 USA E-mail : Toll Free Phone Fax : : : 877.880.4477 281.880.6525 281.866.9426