As a busy retirement plan sponsor, you've probably heard a fair amount about fiduciary compliance and are aware that laws and regulations have recently changed, further emphasizing the importance of fiduciary compliance. Here's a list of five areas to review to ensure you're meeting your fiduciary responsibilities:
1. Confirm you're sharing all required information with your plan participants. You are responsible for ensuring that participants receive information about the investment options they have to choose from. This responsibility has been broadened recently to include investment and plan administration costs. Most recordkeepers are modifying their reports and websites to include this information, so it's not necessary to prepare a set of plan cost reports to distribute. It is, however, your responsibility to monitor your recordkeeper to make sure they intend to share this information.
You may also want to check with your investment adviser to verify that the investment fund information you share with new employees is up-to-date. Ensuring that participants receive enough information on plan investments to make appropriate investment decisions helps you comply with section 404(c) of ERISA. Complying with section 404(c) provides you with protection from participant lawsuits related to the investment choices that they make.
2. Make sure the investment committee meets regularly to discuss items relevant to the plan. There are a number of good reasons to have an investment committee, one of which is that you're not required to make retirement plan decisions alone. The most common fiduciary compliance mistakes include not having an investment committee in the first place, and having an investment committee but not holding any meetings.
Ideally, you should have an odd number of members on your investment committee. Typically, the senior financial, operations and human resources people belong on this committee. Most investment committees meet on a quarterly basis. Quarterly meetings are often attended and led by your investment adviser, since you should be spending the majority of your meeting time reviewing investment fund performance and costs. Additional items you should discuss at these meetings include administration, procedures, plan design, fiduciary compliance, document maintenance, overall plan costs and vendor reviews and evaluations.
3. Have documentation, including minutes, of all meetings. If your investment committee met quarterly in 2011 but no meeting minutes exist to document the meeting, did the committee really meet? Internal Revenue Service and Department of Labor officials might feel that a lack of meeting minutes indicates that the committee actually never met. Record the decisions that were made during each committee meeting and document the process of how decisions were reached.
Similarly, if you held an employee education session this year and distributed a lot of important information about your plan, remember to keep copies of all handouts and an employee sign-in sheet in your files. This sort of documentation will help authenticate your compliance with section 404(c) in the event you end up with a participant lawsuit related to your investment funds.
4. Follow the proper procedures when making decisions about the plan. The investment committee is required to act with care, skill, prudence and diligence. The committee also needs to make decisions that conform to the terms of the plan documents. Following these decision-making criteria will help your company avoid lawsuits, dispel the notion of favoritism and demonstrate an objective, logical decision-making process.
Even if the decision is made to maintain the status quo, it's important to document in your meeting minutes the due diligence and logic that led to not making a change. Also keep in mind that any decisions you make need to be in the sole interest of plan participants.
5. Monitor costs. It's never been more clear that the DOL expects you to closely monitor all costs associated with your retirement plan. Recent changes in the law have made it easier for you to do so by requiring that more information about costs be shared with you. It's your duty to verify that all of the fees that are charged to your plan are reasonable. The fees you pay don't have to be the lowest and can even be above average, as long as they are reasonable.
Contributing Editor Robert C. Lawton is president of Lawton Retirement Plan Consultants, a Registered Investment Advisory firm helping corporations with their investment, fiduciary and compliance responsibilities. He can be reached at
