You may have been a benefits professional for a long time, but just like spring cleaning, you should review the governance for your benefit plans on a periodic basis.
Why? Because we live in a dynamic world with changing regulations, a volatile financial landscape and an increasingly litigious environment.
The rules governing benefit plans are complex, sometimes conflicting, and are the purview of multiple agencies - Department of Labor, Internal Revenue Service and the Securities and Exchange Commission.
Even the most earnest and educated attempt at complying with all the regulations will not be 100% successful.
You need a good governance structure in place to protect your participants by providing a fair and documented process, to protect the fiduciaries and to protect the company by sheltering the senior executive team.
A good governance paradigm is like the fairness police and the ultimate insurance policy all rolled into one. And isn't that what you really want - the best benefits you can reasonably offer your employees while protecting the company in every way you can?
Benefit plan administration is not easy or simple. Benefit plans are driven by lots of participant data (new hires, rehires, leaves of absence, terminations, change in job status and more) and rely on multiple systems, both internal and external.
Plan documents, summary plan descriptions, required disclosures and confirmations for various transactions all require constant review and updates.
Outside consultants are common, including investment consultants, outside ERISA counsel, communications consultants and outsourced plan administration.
And of course the plans are administered and overseen, ultimately, by mere humans - humans that are asked to do more with less every year.
Mistakes will happen, but your processes, procedures and documented governance structure will help you minimize, to the extent possible, the number and frequency of mistakes while providing a framework that ensures a fair and equitable resolution.
Cleaning up your processes
Here is a checklist to get you started with your governance spring cleaning:
* Review your charter. Make sure it's up-to-date and has been signed.
* Review the committees you have in place. Commonly there are at least two committees, but there may be more depending on the size and complexity of your organization.
* Reevaluate the structure. Oversight of administration and investments might be combined in one committee or separate committees. The number and complexity of appeals will determine if you need a separate appeals committee. Appeals can be time consuming, and some participants will be represented by counsel.
* Examine who sits on the committees. If your top officers participate, you should consider their exposure and the risk to the company. In the past, senior leadership often participated in benefit committees, but most companies are moving away from having them participate to help mitigate risk.
* Review how often your investment committee meets. Now that financial markets can seem to nearly collapse in nanoseconds, ensure that annual review still is sufficient.
Quarterly reviews are now the most common frequency, but consider what works for your company. Has your plan increased in value or number of participants to warrant a more frequent review?
Ask your in-house or outside legal counsel to either take your minutes or assist you in their review. One day, the minutes may be handed to you to read aloud to a jury.
* Ensure committee members have expertise in areas needed to execute and review. Remember the fiduciary standard is not the average prudent man. Get those experts to provide advice and guidance as needed.
* Document delegations to ensure authority for actions. Your administration team needs to have the ability to manage the plans on a day-to-day basis effectively and efficiently. Review the delegations you have in place to ensure this is the case.
* Add governance spring cleaning to your annual fiduciary checklist. You will be glad you did.
Contributing Editor Mary Nell Billings is director, benefits, Americas, for Hilton Worldwide, headquartered in McLean, Va. She was formerly manager of employee benefits and manager of strategic planning and governance, retirement plans, for FedEx. She holds both a BBA and MBA in accounting and finance from the University of Memphis. She can be reached at MaryNell.Billings@hilton.com. Follow EBN on: Twitter | Facebook | LinkedIn | Podcasts
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