There’s no such thing as merely sitting in on meetings when it comes to the high standards of ERISA. Each member of a retirement plan committee can be held personally responsible–financially–for errors and oversights. Here are pointers and examples to help committee members lean into their obligations.
Make Informed Decisions
Members of employer sponsored retirement committees do not have to be experts—but they do need to do their homework in preparation for meetings, and participate thoughtfully, so as to make informed decisions on behalf of all plan participants and beneficiaries. 401k plan champion and thought leader, Nevin Adams offers this rousing reminder about the important work of committee members–and the consequences of failure:
Whether you lead a plan committee – or are “just” part of one – it’s important to be prepared. ERISA requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are SOLELY in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. Even if you (just) serve on a plan committee, you are also held to that standard. Legally, you have personal financial responsibility for those decisions – and that motivation alone should provide the requisite focus on preparation. That said, ERISA does not require that you make those decisions by yourself—and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it. But you’ll help them – and help yourself – and help the plan participants – if you do your homework BEFORE the committee meeting.
Indeed, under the high standards of ERISA, all fiduciaries have a very serious legal responsibility to oversee plans and participant assets: “Your [fiduciary] responsibility really is to the participants, and you want to make sure that the people making those decisions for the plan are making them based on the right information.” One specific example of a critical area for plan committees to dig into is clarity on the fees paid by participants, and the services they are receiving in return: “Making prudent fiduciary decisions for the plan involves staying informed and monitoring recordkeeping, administration and investment fees….Know that “[plan] fees don’t have to be the lowest, but they need to be competitive and benchmarked, also, with the services provided…”. As Adams points out, understanding how much participants are paying, and to what end, has a direct impact on retirement outcomes:
…Many plans…have a budget when it comes to the expenditures that require corporate funding.Less clear is how many establish some kind of budget when it comes to what participants have to spend. Now, granted, what they pay will vary based on any number of …variables — but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much — and for what. At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharing, and the availability of alternative share classes (or options like CITs) — but it also means having an awareness not only of the plan features, but the usage rates of those plan features.
Let’s face it – when it comes to retirement plans, there often IS a direct link between spending less and saving more.
It’s a good idea for plan sponsors and committee members to periodically review the Department of Labor booklet, Meeting Your Fiduciary Responsibilities, for a refresh on what the government expects. Remember too: the Department of Labor specifically requires plan fiduciaries to obtain and keep current with ERISA fidelity bonds: “Every person who “handles funds or other property” of an employee benefit plan is required to be bonded….” Do not, however, confuse the ERISA Bond with fiduciary liability insurance. While ERISA bonds are required for the protection of retirement plans, fiduciary liability insurance is an important risk management practice for plan sponsors and other fiduciaries: “Without this coverage, a fiduciary could be personally liable for losses resulting from their fiduciary failures.”
Fortunately, fiduciary risks do not have to be shouldered alone: Colonial Surety Company makes it efficient and affordable to add Fiduciary and Cyber Liability Insurance to the ERISA Bond, ensuring protection for the plan, the company and the plan sponsor. When armed with our cost-efficient Fiduciary+Cyber Liability Insurance, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Plus, the Cyber Liability Insurance provides breach response services, ensuring implementation of obligatory investigation and notification procedures, and offering coverage against lawsuits and regulatory actions.
It only takes a moment to quote and obtain affordable protection. Click here and protect the plan, the business–and yourself:
Fiduciary and Cyber Liability Insurance Here
Need help? Our knowledgeable, New Jersey based ERISA service team is available Monday-Friday, 8:30am-5:30pm EST at 888-383-3313 and via email: erisadept@colonialsurety.com.
Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.