Industry Insights

In the past two years, politicians and regulators, spearheaded by U.S. Department of Labor (DOL) initiatives, have focused on working toward giving employees opportunities to build sufficient retirement funds. As a result, 401(k), 403(b), profit-sharing and defined-benefit plans are receiving considerable attention. Implementing best practices and providing employees with opportunities for a successful retirement begin with retirement plan fiduciaries understanding their DOL-outlined responsibilities. The following questions address fiduciary responsibilities and industry best practices. 

Question:  Who is a retirement plan fiduciary?

Answer:  Generally, a fiduciary is anyone with responsibility and discretion for plan administration, investment selection and selection of service providers. This can include the sponsoring employer, the employer’s board of directors or officers or other designated persons responsible for plan decisions.   

Question:  What are the responsibilities of retirement plan fiduciaries?

Answer:  Broadly speaking, plan fiduciaries must act solely in the interest of plan participants and their beneficiaries, follow the plan document (unless inconsistent with ERISA standards), diversify plan investments and pay only reasonable plan expenses. While this sounds easy, putting it into practice can be challenging. For example, unless a company is currently benchmarking all of the fees incurred by plan participants, it would be difficult to understand if the fees are reasonable. In fact, many retirement plan fiduciaries don’t know what fees are being paid. 

Question:  Why is it important for retirement plan fiduciaries to know their responsibilities?

Answer:  It provides fiduciaries a solid base from which to implement retirement plan best practices, such as designing a plan that encourages greater employee participation, creating a formal process that drives the investment selection and monitoring process, documenting trustee meetings, benchmarking fees and providing strong and regular employee education. 

Because of the increased focus on benefit plans, plan fiduciaries also can expect greater scrutiny from the DOL. Fiduciaries who knowingly or unknowingly fail to meet their responsibilities are exposed to potential liability and fines. The IRS and DOL have hired close to 1,000 new auditors over the past two years in their effort to ramp up oversight.

Question:  What specific steps can benefit plan fiduciaries take to better fulfill their responsibilities?

Answer:  Fiduciaries should know the ERISA standards and the contents of their plan documents. They should utilize prudent experts to help oversee the plan. For example, hiring an investment consultant who will take on co-fiduciary status provides additional protection. Our experience shows most plans do not have a documented process in place for selecting and monitoring investments offered, which can easily be accomplished by creating and following a written investment policy statement. We also find that most plan fiduciaries don’t know the plan’s total expenses or if these are reasonable. There are two ways to control this:  Use experts who are completely independent and transparent in their expenses, or have plan expenses benchmarked annually using an independent third party.

Question:  What questions should benefit plan sponsors ask about their plan and their role as fiduciary?

Answer:  The following are a few questions that require an affirmative response to know plan sponsors are appropriately fulfilling their fiduciary responsibilities:

1. Do I know my fiduciary responsibilities under ERISA?
2. Am I comfortable being considered a “prudent expert” in overseeing my duties as fiduciary? If not, have I hired an expert to guide me or to take responsibility for decisions?
3. Have I been prudent in my decision-making process, and can I prove this through documentation?
4. Do I clearly understand all plan fees, both direct and non-direct, along with who is receiving compensation from the plan and the amount in percentages and dollars?
5. Does my plan have a formal investment policy such as a written Investment Policy Statement (IPS)?

If you have questions about your plan, contact your BKD advisor.