Some of us may be unorganized in our approach to the management of personal finances—and that is no one’s business but our own. However, when it comes to serving as a retirement plan sponsor, a higher duty of care is required. ERISA law experts share important organizational advice for plan sponsors.
Handling The Money of Others
When you are a retirement plan sponsor, the bottom line is: you are responsible for the money of others. Ary Rosenbaum of The Rosenbaum Law Firm reminds puts it this way: “As a plan sponsor, you’re also a plan fiduciary which means that you have a higher duty of care when handling the money belonging to other people than you do with your funds.” According to Rosenbaum, one important way to demonstrate your duty of care is by arming your third party administrators with good records—after all, they cannot do their jobs, if you are not doing yours:
You have a responsibility to your plan’s participants and you need to be organized because missing records and documents are going to threaten the tax qualification of your plan and put you in high water with the government and/or plan participants. When it comes to plan administration, you need to be organized in keeping records for your third-party administrator (TPA) to effectively do their job. If you don’t have the right plan document and if you don’t have all your valuation reports, it’s going to be very hard for your TPA to make sure your plan complies. Also, disorganization is a problem if your plan is audited by the Internal Revenue Service (IRS) and the Department of Labor (DOL). Not having complete records is only going to prolong the audit.
Prudent Process
As a plan sponsor, it’s not just what you do—it’s how you do it. In other words, it’s imperative to put protocols in place to make good decisions on behalf of the plan—and to carefully document not just the decisions, but how they were arrived at, and the subsequent actions taken. Having a committee can be a helpful step toward prudent process, but, experts caution plan sponsors against becoming lackadaisical about committee proceedings:
Keeping notes of all meetings will help you show evidence that you took your role as a plan sponsor seriously. Setting up a committee isn’t enough; you have to hold meetings and record all the decisions with the minutes of those meetings….One major mistake in creating a 401(k) plan committee is by having too many members on it. Too many members…paralyze the committee into inaction when they should be doing their job.…Draft minutes that record all the decisions made in the meeting, as well as those who attended. A big decision for the committee is usually going to be the fiduciary process of the plan. When the advisor of the plan makes recommendations or decisions (if they are an ERISA §3(38) fiduciary), make sure it’s reflected in the minutes. Also, summarize all the presentations…well as the thought process used in making the decisions that were made.
Uh-Oh Moments?
It’s not uncommon for plan sponsors to realize a mistake has been made (or even that many mistakes have been made) in the administration of the plan. Even with diligent effort, compliance with the exceptionally high standards of ERISA law is complex and time consuming.That’s why fiduciary liability insurance is a best practice for plan sponsors. Without coverage, even a mere allegation of a fiduciary breach can be ruinous. Consider, for example, that in ERISA cases, defense costs alone run about $600—per hour. These days, even a relatively minor cybersecurity incident can quickly spiral into a fiduciary disaster. Be prepared and protected with Colonial Surety’s affordable Fiduciary-Cyber Liability Pack for plan sponsors. Armed with this protection, you’ll have:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties—up to $1,000,000.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
Colonial makes it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary-Cyber Liability Pack
Fee Disclosures: Read and Review
Remember that pile of information you got about fees from your plan provider? You can’t just let it linger at the bottom of your pile, hoping you’ll get to it someday—or that perhaps you won’t but it won’t really matter. It does! As ERISA expert Ary Rosenbaum reminds us: “Fee Disclosures don’t belong in the drawer As a plan fiduciary, you must determine whether the fees the plan pays are reasonable for the services provided. So when you are handed the fee disclosures by your plan providers, you just can’t drop them in the back of the drawer. You need to benchmark your fees against what other similar providers (in terms of service) charge and keep records of the work you’ve done in determining whether your fees are reasonable or not.”
Don’t Forget: Current ERISA Bond
While you are getting better organized for success as a retirement plan sponsor—and fiduciary—be sure to check on the status of your ERISA fidelity bond. An often overlooked DOL requirement, ERISA fidelity bonds are not the same as fiduciary liability insurance: ERISA bonds protect the retirement plan against acts of fraud or dishonesty. The DOL requires ERISA fidelity bonds for everyone involved in handling funds or property of the retirement plan (in any way). Note too: the Department of Labor mandates that ERISA Fidelity Bonds can only be obtained from the Department of the Treasury’s Listing of Approved Sureties (Department Circular 570). Failure to have an ERISA bond that continuously and adequately covers the plan poses significant risks for plan sponsors and other fiduciaries. As a leading national ERISA bond provider, listed with the Department of the Treasury, Colonial helps plan sponsors ensure compliance. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for comprehensive, multi-year coverage packages, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Obtain ERISA Fidelity Bond Here Now.
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Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.