As the plan sponsor of your company retirement plan, you have a ﬁduciary obligation to manage the plan assets and oversee operation. The fiduciary guidelines of the Employee Retirement Income Security Act of 1974 (ERISA) require the named fiduciaries of the Plan to carry out due diligence in administering Plan operations. Fiduciaries have responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.
These responsibilities include:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
- Carrying out their duties prudently
- Following the plan documents
- Diversifying plan investments, and
- Paying only reasonable plan expenses
Although ERISA does not require it, establishing an administrative committee is considered a sound risk-management strategy for plan sponsors who must shoulder most of the fiduciary liability.
Responsibilities of the Committee:
- Reviewing and approving the fundamental and ﬁnancial operations.
- Establishing due diligence procedures for selecting and monitoring the investment options.
- Decisions made, such as the decision to place a specific fund on a formal or informal “watch list” that will need to be addressed at a future meeting.
- Decisions made which require immediate action, such as the decision to remove and/or replace a fund in the Plan’s line-up.
- Reviewing agreements with third party administrators and investment managers.
- Compliance with 408(b)(2) service provider notices and plan fee evaluations.
- Monitoring for changes in third party administrators, investment managers, and investment policies.
- Reviewing the list of parties in interest and prohibited transactions.
- Approval of benefit payments and employer discretionary profit sharing contributions.
- Analyzing participation issues such as education, goals for increasing the number of participants, or deferral rates.
- Holding timely, periodic meetings with minutes which document the activities of the fiduciary.
With the complexity of investment alternatives and the tax laws covering the qualifications of the Plan and fiduciary responsibilities of the trustee, it is important that the plan sponsor adequately carry out and document the due diligence exercised over the operations of the plan.
By establishing an administrative committee, plan sponsors are better able to maintain focus on the vital issues that impact the plan and plan participants.