Of course we are. It’s hard enough to run a business. Adding on a retirement plan is a wonderful and important thing to do, but comes with a whole host of serious fiduciary responsibilities. Experts suggest areas for focus.
Deciding, Monitoring, Assessing…
The list goes on and on when it comes to making sure the retirement plan is benefiting all participants and operating in compliance with the high standards of ERISA law. Of course most retirement plan sponsors outsource day to day administration to third parties and secure financial advisers too. Nonetheless, plan sponsors retain fiduciary obligations (and liabilities) since ultimately, they are deciding on the various providers used by the plan. Understanding that it’s nearly impossible to “do it all,” fiduciary expert Christopher Carosa wisely posed this question to others in the field “If you had only so much time to complete all your fiduciary duties, which ones would you focus on first?” Among the suggestions that emerged were these two:
Custody of Assets
In a sense, this is where the rubber meets the road. If you’re not keeping eyes on the henhouse, pretty soon some fox will keep eyes on it for you. And you know what that means to all those golden eggs. “Avoiding a Madoff risk is critical,” says Harold Evensky, Founder of Evensky & Katz in Miami, Florida. “Every other issue pales in insignificance if there are no assets left.”
Plan Utilization
Not only do you need to watch the place that holds all the money, but you also need to watch the pipeline that feeds the money there. “My top priority is savings into the accounts of plan participants,” says Jason R. Escamilla, Founder, CIO ImpactAdvisor LLC in San Francisco, California. “This includes employer and matching contributions—401k plans exist to fill retirement accounts with savings. This is our key metric.”
While money—and it’s flow into retirement accounts requires continuous diligence, the retirement plan itself needs attention too, and under ERISA, that means both implementing and documenting solid governance practices. As Carol Buckmann, Partner at Cohen & Buckmann P.C. in New York City puts it: “Good governance really encompasses the means and tools to deal with all of the other issues….If the plan has good written procedures and clear delegations of responsibility to particular individuals or groups, the odds that ERISA responsibilities will be performed well and violations will be avoided are maximized.”
Experts also emphasize that plan sponsors retain liability exposure for the decisions made in using third party administrators—and can be held personally responsible for mistakes made in the operations of the retirement plan. Because it is impossible to fully eliminate the inherent risks associated with sponsoring a retirement plan, it makes good sense to reduce them via fiduciary liability insurance. Colonial’s affordable policy provides defense costs and penalty limits up to $1,000,000 if you face allegations over an error in plan administration.
For further value and protection, Colonial’s Fiduciary Liability policy comes with Cyber Liability coverage—at no extra cost. That’s important, because for plan sponsors, a cyber breach can quickly explode into a fiduciary breach. It only takes a few minutes—and a few dollars a day—to protect your business—and savings:
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Identify and Address Errors
One way that retirement plan sponsors can be proactive with their responsibilities is through routinely identifying and correcting errors made in plan operations. To that end, a thorough annual assessment is best practice. Plan operations that are out of sync with the plan document, as well as delays getting into compliance with emergent laws and regulations are examples of issues that frequently go unchecked. As Genelle Brakefield, a vice president at third-party administrator Ekon Benefits points out: “If you don’t look, you don’t know what’s going on….The nice part about doing these assessments frequently is that the faster you can identify a problem, the faster you can fix it… Speed is our friend, in this case.”
A great way to begin a review of plan operations is to read the 401k Plan Fix-It Guide provided by the IRS. Awareness of the 12 most common errors associated with retirement plan operations positions sponsors to drive attention to them and secure expert assistance accordingly. For example, retirement industry experts suggest that it can be helpful to secure outside expertise to conduct an operational review, noting that the scope and depth of a review can be tailored according to the concerns of the plan sponsor.
Because compliance errors are always a possibility, another prudent practice for retirement plan sponsors is obtaining fiduciary liability insurance for their own protection. Colonial makes it easier and speedier then ever to obtain affordable coverage:
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