Hidden governance risk could upend retirement plans

Plan sponsors, regardless of company size, often take advantage of outsourcing as much as possible when it comes to their retirement plans. It's common to assume that once a recordkeeper, administrator, investment advisor or other third party is engaged, there is little need for active oversight from the plan sponsor. Over time, this can contribute to a degree of detachment from plan operations. But even in the absence of third-party involvement, many plan sponsors would be hard-pressed to explain the full scope of their governance responsibilities — a gap that tends to go unnoticed until a key team member departs.

For brokers and advisers, this governance blind spot is worth paying attention to. If your client lost its head of benefits tomorrow, what would the next person walk into? In most cases, not enough. No comprehensive guide outlining the plan's structure, no directory of key vendors and their roles, no written procedures for ensuring that service providers are performing as expected. There may be no clear documentation of periodic fee benchmarking, benefit committee structures, or audit procedures — just a vacuum of institutional knowledge that the last person responsible for the plan carried in their head.

With flexible work arrangements, the workforce is more dispersed than ever, and while many companies have policies for centralized electronic filing, the reality is often far messier. Documents may exist, but they're scattered — an outdated summary plan description in a shared drive, recent plan amendments buried in email attachments, critical compliance information saved on someone's personal computer. The one person who knows how it all fits together may have a checklist in their desk drawer — at home.

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As long as that person remains in his or her role, plan operations may hum along just fine. But what happens when they leave? If they quit, retire, or — heaven forbid — something unexpected happens, the company could be left scrambling.

This is more than just a theoretical problem — it's a fiduciary issue with real financial and legal consequences. Plan sponsors are legally responsible for ensuring that their retirement plans are administered correctly and that duty doesn't vanish when an employee moves on. If a key plan administrator departs without proper documentation in place, compliance failures can follow. Missed deadlines, incorrect benefit calculations and regulatory missteps are just the beginning.

If plan sponsors thought about this issue the way they think about their personal estate planning, they might see the urgency more clearly. Most people procrastinate on writing a will because they don't want to think about the inevitable. But just as we all know we'll need an estate plan one day, every plan sponsor will eventually move on. The question is whether they will leave behind a well-documented plan or mess for someone else to untangle.

A governance framework that stands the test of time

The solution isn't complicated, but it does require discipline. Plan sponsors must take ownership of their governance responsibilities, ensuring that policies, procedures and key plan information are documented, up to date and stored in a centralized, easily accessible location. Brokers and consultants are often in a position to help shine a light on this blind spot or connect plan sponsors with third-party experts who can assist.

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At a minimum, every plan sponsor should have:

• Defined roles and responsibilities: Clearly outline the duties of internal and external fiduciaries, including the plan sponsor, committee members, third-party administrators, recordkeepers and investment managers. Document delegations of authority so there's no ambiguity about who is responsible for what.
• A centralized plan governance document: This should serve as the go-to resource for anyone stepping into a plan administration role. It should include a high-level summary of plan operations, list of vendors and their responsibilities, key compliance deadlines, decision-making processes and escalation procedures.
• Routine oversight and monitoring: Regularly review service provider performance, plan fees and administrative processes. This includes establishing metrics for evaluating vendors, ensuring fees are reasonable and confirming that the plan is operating in compliance with regulatory requirements.
• An annual governance calendar: Key tasks — such as committee meetings, regulatory filings, fee benchmarking, plan audits and fiduciary training — should follow a structured schedule to ensure nothing falls through the cracks.
• Documented decision-making and meeting minutes: Every plan-related decision, from investment changes to compliance actions, should be documented and stored centrally. This creates a paper trail that helps with regulatory audits and ensures institutional knowledge is preserved.
• Data management protocols: Retirement plans generate vast amounts of data, from payroll records to participant transactions. Clear policies should dictate where data is stored, how it is maintained and how access is controlled to protect participant information.
• Fiduciary training: Regular training should be provided to internal plan fiduciaries to ensure they understand their responsibilities. Even experienced professionals need refreshers as regulations evolve.
• Contingency planning: Establish clear procedures for transitioning plan oversight in the event of leadership changes. This should include an emergency transition plan in case of an unexpected departure and a structured onboarding process for new fiduciaries.
  

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Governance isn't just about compliance — it's about ensuring the long-term health and integrity of the retirement benefits employees rely on. With workforce tenure shrinking and retirements accelerating, the time to act is now. Plan sponsors must take governance seriously, documenting processes in a way that ensures continuity and prevents disruption. 

As a broker or adviser, you can play a pivotal role by encouraging clients to prepare that roadmap now — before they're left without one.