Being the fiduciary of a retirement plan for your employees is a huge responsibility. A desire to take care of loyal employees in retirement and the need to attract good candidates in the future are some of the underlying reasons to assume such an obligation.
Unsurprisingly, education is important for both the fiduciary retirement plan sponsor and the plan’s participants. Employers need to understand the duties that come with their fiduciary commitment, and research has shown that employee outcomes can benefit greatly from retirement planning and/or investment training resources. In fact, workers who listed their employers as their first or second source of retirement education have more money saved for retirement than those who listed their parents or family members as their top source of information, according to a new survey by Ramsey Solutions. Employees with access to financial and retirement education have less stress, more savings and more confidence. (For related reading from this author, see: Enticing Retirement Plan Participants to Save.)
As fiduciary retirement plan sponsors, employers are held to ERISA’s “Prudent Man” rule, which outlines a standard of care. Nevin Adams writes in an article for the National Association of Plan Advisors that “when fiduciaries act for the exclusive purpose of providing benefits, they must act at the level of a hypothetical knowledgeable person and must reach informed and reasoned decisions consistent with that standard.”
Steps Fiduciary Benefit Providers Should Take
So what does that all mean to the employer who just wants to provide the benefit? How do you know if you are protecting your employees and yourself at the same time? Here are a few things to keep in mind:
- You are a fiduciary and are responsible for understanding the commitment of that position. Having advisors to serve with you as a 3(21) fiduciary investment advisor and/or 3(38) fiduciary investment manager is an intelligent decision, but does not take away all of your fiduciary liability as the employer/plan sponsor. These fiduciaries are responsible for specific duties within your employer-sponsored retirement plan. It is your responsibility, however, to make sure they are completing the job that you hired them to do.
- Create a decision-making process that encourages prudence. For each decision, you should: inquire, analyze, consider alternatives, seek help and advice, and document the process, actions and reasoning for the choice.
- Insure yourself. All 401(k) retirement plans are required to hold a fidelity bond. Consider purchasing ERISA fiduciary liability insurance to cover yourself from potential errors, either your own or those of your other advisors/fiduciaries.
- Stay abreast of changes to regulations. With new leadership in Washington, it’s possible that the realm of employee retirement benefits could experience many changes in the next couple of years. Tax reform, disclosure guidelines from the Department of Labor and rules from the IRS can all have an impact on employee benefit plans.
- Undertake an annual plan compliance review. This is the time to check your plan to make sure that any legally required plan design changes have been implemented and to review it to self-detect and self-correct any errors before they are found in an audit. There are no fees or penalties associated with eligible self-corrections, unlike corrective action precipitated by the IRS or DOL, which may impose penalties that care be quite large. (For related reading, see: Are You ERISA Compliant? Follow This Checklist.)
Understanding the processes needed to be a successful fiduciary is vital to safeguarding both yourself and your employees. But most employers simply do not have enough time in their day to stay on top of all the regulations while trying to run a profitable business. Engaging fiduciary advisors to be a part of your team is a strong investment in the success of your retirement plan.
(For more from this author, see: Youth and Roth IRA Equals a Solid Retirement Plan.)