Although ERISA does not require retirement plan committees, having the help of experts can contribute to decisions that are made prudently, in the best interests of participants and beneficiaries. Follow this expert guidance to ensure your retirement plan committee is high-functioning.
Best Practices for Committees
According to the American Society of Pension Professionals and Actuaries (ASPPA), best practices include: holding regularly scheduled committee meetings; carefully recording the minutes; committing to an investment policy statement; reviewing the plans investment options against it; and, acting accordingly to remove “bad funds” from the plan menu. Observing that being a plan fiduciary—personally liable— is a tough and often under-appreciated role, ASPPA offers these further insights about the recommended practices:
Having a committee for having a committee’s sake cannot only hinder your decisions— it can result in bad decisions. Make sure your committee members add value to the process. (Hint: Once they discover that ERISA has a personal liability clause, casual participants generally drop out quickly.)
Having a committee and not having committee meetings is potentially worse than not having a committee at all. In the latter case, at least you ostensibly know who is supposed to be making the decisions. But if there is a group charged with overseeing the activities of the plan, and that group doesn’t convene, then one might well assume that the plan is not being properly managed, or that the plan’s activities and providers are not prudently managed and monitored, as the law requires.
…A written record of the activities of your plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations….Minutes can provide committee members—both past and future—with a sense of the environment at the time decisions were made, the alternatives presented, and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted—properly documented, of course.
Even with a high functioning committee in place, plan sponsors retain personal liability, That means that no matter how diligent we are in our duties, we can face claims of actual or alleged breaches of our fiduciary obligations—and be held personally accountable. The cost of defense alone can be ruinous, with expert legal fees topping $600—per hour. Let Colonial Surety help: the annual premium for our fiduciary liability insurance is less then just one hour with a lawyer if disaster strikes. Protect your business and yourself as the plan sponsor—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s Multi-Year Packages provide the greatest convenience, value and protection, and include: the ERISA bond required by the Department of Labor, Cyber Liability Insurance—and Fiduciary Liability Insurance. Choose Your Plan Sponsor Protection Package Here.
Investment Policy Statement?
ASPPA observes that plan sponsors and their retirement committees often stumble over having investment policy statements—and using them to review and act on the investment menu:
It is worth noting that, though it is not legally required, Labor Department auditors routinely ask for a copy of the plan’s IPS as one of their first requests. And therein lies the rationale behind the counsel of some in the legal profession to forgo having a formal IPS; because if there is one thing worse than not having an investment policy statement, it is having an investment policy statement—in writing—that is not followed.
Whether or not you have an official IPS, you are expected to conduct a review of the plan’s investment options as though you do. Sooner or later, that review will turn up a fund (or two) that no longer meets the criteria established for the plan. That’s when you will find the true “mettle” of your investment policy; do you have the discipline to do the right thing and drop the fund(s), or will you succumb to the very human temptation to leave it on the menu (though perhaps discouraging or even preventing future investment)? Oh, and make no mistake—there will be someone with a balance in that fund. Still, how can leaving an inappropriate fund on your menu—and allowing participants to invest in it—be a good thing?
Under ERISA law, plan fiduciaries have an extraordinarily high duty of care, and can be held personally accountable to the plans’ participants and beneficiaries for a breach. Even when you are not at fault or liable, you can still be sued. Plan sponsors across the country trust Colonial Surety, for affordable and comprehensive protection packages. Uniquely at Colonial, plan sponsors can obtain affordable fiduciary liability insurance and cyber liability coverage. Our comprehensive packages offer plan sponsors up to $1,000,000 of fiduciary liability insurance. Get covered today—Colonial makes it quick and easy: Choose Your Plan Sponsor Protection Package Here.
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