At times, running a small business or large company takes every ounce of energy you have. Whether you have a human resources staff person or not, creating and overseeing a workplace retirement plan takes significant effort. These plans demand periodic attention.
As a plan sponsor, you assume a fiduciary role. You accept a legal responsibility to act with the best financial interests of others in mind i.e., your retirement plan participants and their beneficiaries. You are obligated to create an investment policy statement (IPS) for the plan, educate your employees about how the plan works, and choose the investments involved. That is just the beginning.1
You must demonstrate the value of the plan. Your employees should not merely shrug at what you are offering. You are offering something great—an opportunity to save, invest, and build wealth for their future. Financial professionals know how to communicate the importance of the plan in a user-friendly way, and they can provide the education that “flips the switch” and encourages worker participation. If this does not happen, your employees may view the plan as just an option instead of a necessity as they save for retirement.
You must monitor and benchmark investment performance and investment fees. Some plans leave their investment selections unchanged for decades. If the menu of choices lacks diversity, if the investment vehicles underperform the S&P 500 year after year and have high fees, how can this be in the best interest of the plan participants?
You must provide enrollment paperwork and plan notices in a timely way. Often, this duty falls to a person that has many other job tasks, so these matters get short shrift. The plan can easily fall out of compliance with Department of Labor rules if these priorities are neglected.
You must know the difference between 3(21) and 3(38) investment fiduciary services. The numbers refer to sections of ERISA, the Employment Retirement Income Security Act. Most investment advisors are 3(21) – they advise the employer about investment selection, but the employer makes the final call. A 3(38) investment advisor has carte blanche to choose and adjust the plan’s investments – and he or she needs to be overseen by the plan sponsor.2
To avoid conflicts with the Department of Labor, you should understand and respect these requirements and responsibilities. Beyond the basics, you should see that your company’s retirement plan is living up to its potential.
An attractive retirement plan will help you hire and retain the high-quality employees you need to. You need to be aware of your plan’s mechanics, fees, and performance. You could face litigation, fines, and penalties if your plan fails to meet Department of Labor and Internal Revenue Service requirements.
We can help you review your plan and suggest ways to improve it.
Damian J. Sylvia
Retirement Income Solutions
Office: 732-508-6044
Direct: 732-284-0902
Email: Damian@MyFinancialSolution.org
Website: RetirementSolutionsNJ.com
Citations.
1 – cnbc.com/2017/08/23/qualified-retirement-plan-sponsors-are-fiduciaries.html [8/23/17]
2 – tinyurl.com/ycrqheey [4/7/17]