Sponsoring a 401(k) plan is a terrific way to put employees on the path to secure retirement. However, given the inherent fiduciary responsibilities and the high standards of ERISA, diligence is essential. One helpful practice is maintaining an up to date, Fiduciary Audit File.
Key Documents for Plan Sponsors
Whether or not a DOL plan audit is imminent, it’s wise for plan sponsors to always have essential documents about the plan in reach. Groom Law Group reminds us that it’s also imperative to document the prudent process used when decisions about the plan are made. To keep all this information well organized and easily accessible, retirement plan expert, Robert Montes, recommends establishing and actively maintaining a fiduciary audit file:
A Fiduciary Audit File, is an organized system where one can keep track of all their important documents pertaining to their 401(k) plan. In a nutshell, a fiduciary audit file can help you:
- Stay organized in the event of an audit
- Respond to inquiries by plan participants
- Establish reporting policies and procedures
- Document compliance with established policies and procedures
- Keep an organized record of Committee Meetings, Committee Charters, Investment Policy Statements, and Investment Lineup Changes
The good news with a Fiduciary Audit File is that it doesn’t have to be complicated or difficult to maintain. While one can get super detailed and extensive when putting these together, it’s oftentimes overkill to try and get every single document in one place … .Store the main documents consistently and focus on the niche ones as needed.
It’s best to start a fiduciary audit file with the main documents that need to be readily available, including the “plan document” itself. In fact, it’s also best practice for plan sponsors to periodically refer to the plan document. According to the Employee Benefits Security Administration (EBSA), failure to adhere to the terms of the plan is a common and serious ERISA violation. In addition to the plan document, other essential documents for a solid fiduciary audit file include:
- Summary Plan Description – Your Summary Plan Description (SPD) describes in plain language the features of your plan. It is a summarized version of the Plan Document designed to be easier to understand when read by participants.
- Plan Highlights – Your Plan Highlights is a summary of your SPD. It lists the most important features in of your plan in a very concise format
- Fee Disclosures – Your Fee Disclosure details all of the fees associated with your plan and the investments in your plan. There are two main disclosures you’ll want to file. One is your participant level fees (known as a 404(a)) and the other is your service provider fees (408(b)(2))
- QDIA Notice- Your Qualified Default Investment Alternative (QDIA) Notice outlines which investments are selected for your employees when they make contributions without making an investment election. This document will highlight the funds name and associated fees.
- Auto Enrollment Notice – This document summarizes information on enrollment, deferrals, vesting, and distributions.
Toward prudent process, plan sponsors will also find it extremely helpful to consistently update files with essentials that demonstrate and document how decisions about the plan are made, and Montes suggests these:
- Meeting Minutes – The importance of these documents CANNOT be overstated. Remember, the DOL’s view is that if it wasn’t documented, then it didn’t happen.
- Training Documents Covered – When you offer training of any sort, it is a good habit to save a copy of these documents in your fiduciary audit file
- Investment Policy Statements – While not required by ERISA, having an Investment Policy Statement (IPS) on file is a best practice. This document covers how your company oversees investment selection and monitoring. Keep in mind that it is better to NOT have an IPS then to have an IPS which you don’t follow.
- Committee Charters – These documents outline who is responsible for what and who is considered a fiduciary on the plan. They help ensure that no party is surprised by finding out they are acting in the capacity of a fiduciary (and thus subject to ERISA Law) and unaware of it.
Remember Cybersecurity Too…
While organizing and updating essential plan files, don’t forget to include the cybersecurity protocols and practices that correspond to the Department of Labor’s cybersecurity guidance. DOL leadership has also reminded plan sponsors of the importance of cyber liability insurance which explicitly covers the business and plan, and to ensure that response and notification procedures for cybersecurity incidents conform to best practices.
Colonial Surety Company offers one, efficient and affordable solution to meet DOL expectations—and protect the personal assets of sponsors. For a few dollars a day, our Fiduciary+Cyber Liability Insurance Combo:
- Addresses Department of Labor cybersecurity recommendations;
- Explicitly covers the business and the plan in the event of a cyber breach;
- Provides expert response and notification services following a cyber breach; and,
- Reduces the personal risks of plan sponsors, by providing defense costs and penalty limits up to $1,000,000, in the event of alleged or actual breaches of duty in connection with the employee retirement plan.
Protect yourself and the plan in minutes now–and immediately download these important policies to add to your file:
Fiduciary+Cyber Liability Insurance Combo
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