I recently sat down (virtually of course!) with my long-time colleague, Neal Shikes, to talk about his experiences with retirement plan fiduciary issues. As a consultant and expert witness for both plaintiffs and defendants for many years, Neal and his firm, The Trusted Fiduciary, have uncovered numerous breaches of fiduciary duty related to oversight and management of 401(k) and 403(b) retirement plans. The impact of decisions made by retirement plan fiduciaries can have a serious impact on the value of employees’ retirement assets and therefore on their future retirement.
Helping employees with their retirement savings is extremely important and providing high-quality retirement beneﬁt options is one of the best ways to attract and retain talent. But as plan sponsor, companies, universities and boards must also understand the scope of their fiduciary responsibility. Otherwise, there may be serious legal consequences related to neglect and inaction. There have been a growing number of lawsuits against plan sponsors; some settlements have cost employers millions of dollars, costs which may have been avoided if better procedures were in place.
Based on Neal’s experiences with retirement plans of all sizes, below are some of the basic questions that fiduciaries should be asking, and ensure they have an understanding of acceptable responses from a regulatory perspective:
- Are you clear about the extent of your legal responsibilities?
- Is there a documented methodology for selecting investments, recordkeeping services and reviewing plan performance?
- If you are hiring third-party service providers, have you looked at a number of providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided?
- Who pays for the plan’s recordkeeping and administrative fees – the employee or the plan sponsor?
- Questions related to the investments offered in your plan:
- How many investment options do you offer, and are these choices diversified enough?
- How often do you review the investment options and performance of the funds?
- Do you offer “passive” investments like index funds, as well as investment options that are “actively” managed against a benchmark?
- If you offer Target Date funds, how did you choose them?
- Do you offer a brokerage option?
- How often do you review the plan’s Investment Policy Statement?
Taking the time to go through this exercise can potentially mitigate exposure to legal action, while also helping employees achieve their retirement goals. As financial professionals, we can help you through this process, whether you are a small company or a larger, more established business or university.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations