5 best practices for retirement plan fiduciaries
Published March 25, 2015 3:50 AM
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Updated March 25, 2015 11:52 AM
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Overview:
The current legal and regulatory environment makes it more important than ever that employers and their benefit advisers understand the role of a retirement plan fiduciary and stay abreast of the latest developments and guidance. When considering what plan sponsors can do to most effectively satisfy their fiduciary duties, Dave Burns, a senior ERISA consultant and manager in Vanguard Strategic Retirement Consulting, says these five best practices rise to the top of the list.
1. Have a well-organized and effective investment committee.
Committees should include qualified people who know their responsibilities and duties as a plan fiduciary and have the necessary training and expertise to perform in that role properly, says Burns.
It's also imperative, he adds, that the committee be well-organized, with regularly scheduled meetings (about once per quarter) and the flexibility to convene ad hoc meetings as necessary.
Documenting decisions is a key component of a well-organized and effective committee, says Burns, adding Every decision that the fiduciaries make should be done in the best interest of the plan participants. That should be the guiding force that committees follow."
It's also imperative, he adds, that the committee be well-organized, with regularly scheduled meetings (about once per quarter) and the flexibility to convene ad hoc meetings as necessary.
Documenting decisions is a key component of a well-organized and effective committee, says Burns, adding Every decision that the fiduciaries make should be done in the best interest of the plan participants. That should be the guiding force that committees follow."
2. Prudently select and regularly monitor the plan's investments.
The plan's investment policy statement (IPS) should define the guidelines that the committee will follow when selecting and monitoring plan investments, says Burns, adding that simply following the IPS should help the committee members from a liability perspective.
"The courts dont always expect sponsors to hit a home run when selecting plan investments," he says. But they do expect fiduciaries to demonstrate that a prudent, deliberative process was followed and that they acted in accordance with the terms of the IPS.
"The courts dont always expect sponsors to hit a home run when selecting plan investments," he says. But they do expect fiduciaries to demonstrate that a prudent, deliberative process was followed and that they acted in accordance with the terms of the IPS.
3. Properly oversee the plan's administrative processes.
Fiduciaries must make sure that the plan is being administered in accordance with the plan document and the provisions of current law. Fulfilling this duty means working closely with the plan's record keepers to make sure that all of the plan's provisions are being properly administered, says Burns. In addition, it's a good idea to periodically audit the plan's operations to ensure compliant plan administration, he says.
4. Monitor plan costs.
A DOL mandate in recent years that sponsors provide participants with an annual fee disclosure notice heightens participant awareness of fees, gives employees more information than they had before, and highlights the importance of properly monitoring plan costs, Burns says. Whether the plan has a per-participant charge imposed for administrative services or an asset-based fee where a portion of the funds' expense ratio pays for administration, it's important to be sure that those fees are not excessive, he adds.
5. Evaluate company stock.
The Supreme Court's Dudenhoeffer decision in June 2014 essentially threw out the presumption that the investment in company stock is prudent and made it clear that company stock is subject to the same prudence requirements as any other plan investment. This decision makes it important for sponsors to properly document the process they went through to select company stock as an investment option and to periodically review company stock and ensure that it remains a prudent investment option for the plan.
