By Ken Etheredge
Your company’s 401(k) administrator has a secret: they’re not sleeping well. Their list of administrative duties has become a burden to their regular workload, and they’re constantly making key decisions and advising others on things that are not in their primary area of expertise. They, along with you and your plan committee, have a huge responsibility…to the company and your employees. Here are the top concerns we hear from plan sponsors:
That’s a big question, because it's a big responsibility. According to ERISA, a fiduciary must act in the best interest of plan participants; act with care, skill, prudence and diligence; avoid prohibited transactions and be free from conflict; diversify the investment options to minimize the risk of large losses; and follow the plan documents and instruments governing the plan.
A lot of complicated tasks fall under those responsibilities. Establishing an Investment Policy Statement. Creating the overall investment structure and asset coverage of your fund lineup. Selecting the right managers for each asset class. Continually monitoring and reviewing those managers to ensure they are meeting their responsibilities. These are just some of the things on the plan sponsor’s “must do” list.
Employers commonly spend two and a half times more on health benefits than on retirement benefits, so it’s no surprise that your company’s retirement plan gets less attention.1 Unfortunately, that’s not a valid excuse for breaching fiduciary responsibilities, whether intentional or not. And the consequences can be severe.
Individuals serving on the plan committee can be personally liable to make good on any losses resulting from the breach and to restore any profits you might have made by improperly using plan assets. You may also be subject to other penalties a court may impose, and they can be hefty. In 2013, the U.S. Department of Labor (DOL) fined plan sponsors in seventy-five percent of their audits. The average fine: $600,000 per plan.2
Another concern: in 2014, the DOL added 1,000 additional enforcement officers for 401(k) compliance audits.3 And expert panelists at a June 2016 conference reported that both the DOL and the Internal Revenue Service (IRS) have announced plans to increase the number and frequency of audits.4 Again.
Managing and administering a company’s retirement plan is a full-time job in itself. In the real world, however, it’s usually just a small part of an employee’s or committee’s long list of duties. This can result in a decreased level of service and support for employees concerning their retirement plans, as well as mistakes or oversights in keeping up with fiduciary responsibilities.
Proper administration of a 401(k) plan includes preparing plan documents, forms and plan amendments due to new regulations. There are a number of required notices and mailings that must be managed and executed, from 402(f) tax notices to SPDs and QDIA and EACA/QACA notices. 5500 reporting must be properly prepared, terminated participants must be managed, beneficiary designations must be established and kept up to date, and a wide variety of compliance testing (ADP/ACP, 415 annual addition limits, top heavy, minimum coverage and 402(g) monitoring) must be administered. Add to that the very heavy burden of employee education and support— from group presentations and one-on-one meetings to maintaining online and printed resources—and the workload can quickly become overwhelming.
Fortunately, partnering with a full-service provider that offers comprehensive administrative support, plan design consulting expertise, and serves in an investment fiduciary capacity on behalf of your plan can help alleviate some of these concerns and ease the burden on your plan administrator and committee members.
Note that while a general fiduciary can advise a plan sponsor, only an investment fiduciary can act on investment decisions for the plan and significantly reduce your administrator’s workload. It’s important to know that while the plan sponsor can minimize its liability with respect to the selection of investments, it cannot completely eliminate its fiduciary liability. You will be responsible for the careful selection of the 3(38) investment manager and must properly monitor them. With that said, however, the right 3(38) investment fiduciary can significantly lighten your load.
As a fiduciary to your plan, a retirement plan provider will bring expertise in ERISA as well as the DOL’s fiduciary requirements and expectations. They will help ensure your committee establishes the proper processes, procedures and documentation expected by the DOL and assist in managing the ongoing decision-making processes to ensure you are meeting your fiduciary responsibilities. Audit support, employee communication and education, automation of a variety of administrative functions, investment consulting, fee analysis, and benchmarking are other services you should look for in a qualified fiduciary.
Your company’s 401(k) administrator and plan committee needn’t lose sleep over the responsibility and workload of managing your retirement plan. The right retirement plan provider can streamline their workload while ensuring ERISA and DOL responsibilities and expectations are met. In the end, you’ll gain peace of mind and a better retirement plan for your employees.