I’m a plan sponsor, now what? A retirement plan can be a great way to attract new employees and offer a benefit to existing employees, but it comes with certain responsibilities. If your company or organization sponsors a retirement plan, you have certain fiduciary responsibilities as the plan sponsor.
But, let’s get to know ERISA first.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law established to ensure protections for participants of voluntary retirement and health plans in private industry. The Department of Labor (DOL) is responsible for enforcing ERISA provisions that govern the conduct of plan fiduciaries.
Under ERISA, plan sponsors must do the following:
- Provide participants with information about the plan features and funding.
- Sets minimum standards for participation eligibility, plan structure, plan funding, vesting of benefits, and rate of accrual of benefits.
- Act as fiduciary of the plan by running the plan solely in the interest of participants and beneficiaries.
To help you fulfill your fiduciary duties, there are certain areas of concern noted below:
- Timely Remittances – One of the biggest concerns of the DOL is the timely remittances of employee contributions. The reasoning for remittances to be timely The DOL’s guidelines on timely remittances for large plans (those with 100 or more participants) requires employee deferrals to be remitted as soon as is administratively feasible, generally this is the pay date, but no later than 15th business day of the month following the business day. The standard is based on the standard set by the plan sponsor. For example, if the sponsor typically remits contributions one day after the pay date, then any remittances after one day are considered untimely. Those plans with fewer than 100 participants are not bound by this standard but must remit contributions within 7 days. Make sure you have clear communication with any outsourced payroll providers to ensure employee deferrals are remitted in a timely manner.
- Plan Expenses – Plan fiduciaries have an affirmative duty to ensure that plan expenses are reasonable. The DOL is proactively focusing on expenses and fees paid within retirement plans as they can have a significant impact on retirement income. A DOL study found that annual fees of 1.5% versus annual fees of .5% can cause a 28% reduction of a participant’s account balance by retirement age.
- Monitoring – Many plans sponsors use a third-party service party to perform various duties including recordkeeping and recording function. While some sponsors outsource different duties related to the plan, the sponsor is ultimately responsible for the plan. It is important for the plan sponsor to know who is responsible for what and to ensure that the third-party service provider is doing their job and doing it right. It is important that those service providers maintain adequate internal controls over the transactions processed on behalf of your plan. The hiring of a service provider to perform any or all of your financial reporting responsibilities is a fiduciary function. As part of your fiduciary responsibilities, you are required to periodically monitor the service provider to ensure it is properly performing the agreed-upon services. Yeah, but how do I know they’re doing their job? A best practice is to annually review your service agreements with service providers and their System and Organization Controls Report (SOC1). The SOC1 is a report on controls performed by a CPA firm that provides organizations reasonable assurance that the controls at the third-party are suitably designed.
- Document, document, document! – One of the simplest ways to demonstrate you are actively fulfilling your fiduciary duties is to document it. To demonstrate the fulfillment of its fiduciary responsibilities, those charged with oversight of the plan should conduct regular meetings. Best practices guidelines are for these meetings to be held at least quarterly going forward. The fiduciary guidelines of ERISA require the named fiduciaries of the plan carry out due diligence in monitoring and administering plan operations. While it is likely the operations of the Plan are being adequately managed and executed, without documented minutes of meetings held and decisions made, it would be difficult, if not impossible, to demonstrate management’s due diligence in this area. Plan management should implement a policy to document their regular meetings and any important decisions or discussions held during these meetings, which should include at least the following:
- Date, time and location of the meeting;
- Identification of the people present at the meeting;
- Reference to any investment reports used during the meeting;
- Participation issues such as education, goals for increasing the number of participants, or deferral rates;
- Plan fee issues;
- Fund performance issues;
- 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.
Rules? Why should I follow the rules?
Fiduciaries can be held personally liable for not following the required standards. If a sponsor breaches their fiduciary duty and the plan loses money, the sponsor is responsible for not only any lost contributions but any lost earnings on the investment. Legal action can be taken against plans and sponsors who do not fulfill their fiduciary duties can be removed.
The DOL Publication Meeting Your Fiduciary Responsibilities provides an overview of the basic fiduciary responsibilities applicable to retirement plans under ERISA. The publication is available on the DOL’s web site at http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html. The AICPA Employee Benefit Plan Audit Quality Center prepares Plan Advisories that provide information to assist plan sponsors, administrators, and trustees in understanding their fiduciary and other responsibilities with respect to various aspects of their plans. The Plan Advisory, The Importance of Internal Controls in Financial Reporting and Safeguarding Plan Assets provides information about the importance of internal controls as well as tips on establishing, maintaining, and monitoring your internal control over financial reporting. The Plan Advisory Effective Monitoring of Outsourced Plan Recordkeeping and Reporting Functions provides information and tips on selecting and monitoring third-party service providers, the importance of quality plan accounting information, monitoring third-party service provider controls over plan accounting information, and special considerations for different types of plans.
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