Retirement Plan Fiduciary Best Practices

You are involved in administering a retirement plan. It’s an important job, and one that may make you a fiduciary to the plan. So, how do you know if you’re a fiduciary? If you are, what does a fiduciary do?

If you exercise any discretionary control over plan management or its assets, you’re a fiduciary. If you have authority for the administration of the plan, you’re a fiduciary. Being a fiduciary carries a significant amount of obligation and responsibility. As a fiduciary, you have the responsibility to act with prudence and loyalty, to maintain the plan for the sole benefit of plan participants and beneficiaries, to follow the plan document, and to diversify plan assets. It is also your responsibility to keep the plan in compliance with the Employee Retirement Income and Security Act (ERISA) and the Department of Labor (DOL) regulations. These regulations are not only complex, but change regularly. The good news is that they are manageable!

To help you on your compliance journey, we've pulled together a set of best practices. These are by no means a panacea, but they will help you stay on top of your fiduciary responsibilities.

Investment Management Best Practices

Establish a Retirement Committee

If you’re the plan sponsor, designating a group of people within your organization that can combine their perspectives, experience and expertise can be a big help in administering your retirement plan. The committee then is able to provide oversight and natural checks and balances between the many parties and practices involved in the plan’s administration.

Establish a Process for Retirement Committee Fiduciary Appointment

It’s important to have a process for choosing the members of the retirement committee and making sure they’re aware of the responsibilities that go along with committee membership. To do this, we recommend a formal, written acceptance of the position and a requirement that each member go through initial and periodic education focused on explaining required responsibilities.

Have Regular Committee Meetings

A committee cannot easily fulfill their duties if they don’t meet regularly. Establish a regular meeting schedule. At the meetings, divide the agenda equally between reviews of investments, service providers and plan compliance issues.

Formally Select a Qualified Default Investment Alternative (QDIA)

A QDIA is the investment that retirement plan participants are automatically put into if they don’t choose an investment fund. It must be a diversified target-date fund, balanced portfolio or managed account.

Adopt an Investment Policy Statement (IPS)

The IPS defines the investment philosophy and strategy for the retirement plan. It provides a roadmap for making prudent investment decisions. The IPS should be in writing, adopted, and reviewed at least annually.

Hire an Advisor

First and foremost, an advisor can help review if participants are selecting from the best investment choices available. Additionally, working with a financial professional is a good way to share or even shift fiduciary responsibility from the plan sponsor (you) to the advisor. Also, consider that It is required by ERISA that for any required function that you don’t possess sufficient expertise, you must obtain that expertise or find an alternative source for that knowledge.

Document Fund Selection

You should follow a definitive approach when choosing your plan’s fund lineup, and it needs to be well documented. It also needs to be reviewed at least annually to ensure it is still appropriate.

Service Provider Best Practices

Document Formal Selection Process

Start by defining the plan’s needs and conduct due diligence on possible service providers. Document your selection criteria and how you will score the providers not only considering cost, but also: services available, reference checks, expertise, level of engagement the provider will be involved among others. In addition, documenting the final results of the evaluation will provide evidence that you exercised prudence in your evaluation.

Document Performance Monitoring Process

Monitoring service provider performance should occur at regular intervals, at a minimum - once per year. You should monitor provider compliance to the plan, provider performance to expectations and value received based on the terms of the provider’s agreement, and reasonableness of fees given the value received. Be sure to document the results.

For more information on evaluating covered service providers - click here for our blog entry on this very topic!

Plan Administration Best Practices

Provide Formal Training

We recommend that plan administrators receive two kinds of formal training:

  • On the plan itself
  • Fiduciary in terms of responsibilities and how to fulfill them

Purchase Fiduciary Liability Insurance

Fiduciary liability insurance protects the fiduciaries and the company sponsoring the plan in case of a fiduciary breach. The good news is such policies are widely available and generally very affordable.

Adopt a Fiduciary Indemnification Provision

Having a fiduciary indemnification policy will make plan fiduciaries more comfortable by providing them with additional security against legal repercussions, including defense funding in case of litigation.

Keep a Careful Calendar

Retirement plans have many required notices, disclosures and reports, each with a specific deadline. We recommend establishing and maintaining a specific calendar to keep track of all deadlines. Document evidence that each requirement was satisfied.

Follow Your Processes

There is nothing worse than establishing a process and then not following it. It would be better not to have a process at all than to have one that is not followed.

How We Can Help

When it comes to retirement plans, each plan is unique. Because of this, there isn’t any one single set of best practices that fits all plans and that guarantees compliance with ERISA and the DOL. While the above best practices can be a guideline for you, it’s always best to consult an experienced advisor or your ERISA attorney about your specific situation.

Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan. At Stonebridge Financial Group, this is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:

  • Ensuring participant retirement readiness
  • 1:1 and group participant education and retirement readiness meetings
  • Financial wellness
  • Committee fiduciary training
  • Process creation and documentation
  • Plan design
  • Contribution match modeling
  • Annual plan compliance review
  • And so much more

We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!

Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email info@stonebridgefinancialgroup.com. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!