Retirement Plan Fiduciary Best Practices

If you exercise discretionary control or authority of plan management or plan assets, or you have discretionary authority or responsibility for the administration of the plan, you are a retirement plan fiduciary. As a fiduciary, it is your job to act with prudence, loyalty, follow the plan documents, and diversify plan assets.

It is also your responsibility to maintain compliance with the Employee Retirement Income Security Act (ERISA) and the Department of Labor. The laws are complex and ever-changing, but they are manageable. The following best practices are not a magic solution that will guarantee compliance, but they should help you stay on top of your fiduciary responsibilities.

Investment Best Practices

Establish a Retirement Committee

A group of people combining their perspectives, experience, and expertise will be more effective at running a retirement plan than just one individual. Having a group take on the responsibility also provides natural checks and balances between the members.

Establish a Process for Fiduciary Appointment

It is important to have a process for choosing retirement committee members and preparing them for their job. It should include a formal, written acceptance of the position and responsibilities. It should also involve educating members of their legal responsibilities as fiduciaries.

Have Regular Committee Meetings

A committee cannot fulfill their duties if they do not meet regularly. At the meetings, the agenda should be divided equally between investment review, service provider review, and compliance review.

Formally Select a Qualified Default Investment Alternative (QDIA)

The QDIA is the investment that all retirement plan participants are automatically invested in if they do not choose otherwise. It must be a diversified target-date fund, balanced portfolio, or managed account that is managed by a Section 3(38) investment manager or investment company.[1]

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 decisions. The IPS needs to be documented and reviewed at least annually.

Hire an Advisor

Working with a financial professional is a good way to share or shift fiduciary responsibility. It is also required by the Department of Labor for any function for which you do not possess sufficient knowledge to perform.

Document Fund Selection

You should follow a defined methodology when selecting your fund line up, and you need to document it. It also needs to be reviewed annually to ensure it is still appropriate for the retirement plan.

Service Provider Best Practices

Document Formal Selection Process

The first step in your selection process should be defining the plan’s needs and conducting due diligence. Document how you will select a service provider for the particular service. It is also crucial to understand and assess the reasonableness of fees based on the services being proposed. In addition to documenting the process used, you need to document the final results of the process.

Document Performance Monitoring Process

Service provider performance monitoring should occur at regular intervals, at a minimum once a year. You should monitor compliance with the terms of the plan, reasonableness of fees given the value received, and performance. Make sure to document the results.

Plan Administration Best Practices

Provide Formal Training

Plan administrators need two kinds of formal training. First, they need to be trained on the plan itself, what the documents contain, and how it works. Secondly, they need training regarding their fiduciary responsibilities and how to fulfill them.

Purchase Fiduciary Liability Insurance

Fiduciary liability insurance protects the company sponsoring the retirement plan in the case of  fiduciary breach. As retirement plan litigation and legislation are increasing, insurance is becoming more and more important.

Adopt a Fiduciary Indemnification Provision

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

Keep a Careful Calendar

Retirement plans have numerous required notices, disclosures, and reports, each with a specific deadline. Utilize a calendar to keep track of all of them. Also, make sure to confirm when they are resolved and maintain the documentation.

Follow Your Process

There is nothing worse you can do than to establish a process and then not follow it. It would be better not to have a process at all than to have one that is not followed.

Seeking Help

When it comes to retirement plans, every plan is unique. Because of this, there isn’t one set of best practices that guarantees compliance with ERISA and the Department of Labor. While the above best practices will be of great use to you, it is always best to consult an experienced advisor regarding your specific plan.

At Stonebridge Financial Group, our sole focus is helping clients build highly effective retirement plans. If you would like some more personalized advice than this article can provide, schedule a free 15-minute introductory phone call today. We look forward to helping you make your retirement plan the best it can be.

About Bob

Bob Herdoiza, AIF®, started his career as a CPA auditing retirement plans and is a Partner at Stonebridge Financial Group, a registered investment advisory firm. Stonebridge seeks to help clients build and manage highly effective, successful retirement plans. Bob also served as President of CEBOS for more than 15 years where he managed his company’s retirement plan before joining Stonebridge Financial Group. He takes pride in his firm’s 98% client satisfaction rate (according to a 2016 client survey) and individualized implementation approach. Learn more by connecting with Bob on LinkedIn or visiting www.stonebridgefinancialgroup.com.

[1] https://www.investnretire.com/Documents/QDIA.pdf