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How to Make Your Retirement Plan Committee Better

By Mark Olsen, Managing Director at PlanPILOT

To function as a successful plan sponsor, you need a retirement plan committee that helps your company organize and administer employee plans, such as the 401(k) or 403(b). While ERISA does not require the committee itself, committee members can keep your organization in compliance with all established regulations. To help you get the most out of your retirement plan committee, we’ve compiled several strategies for your consideration. Could implementing any or all of the following enhance your retirement plan committee’s performance?

Commit to Education

One of the challenges of maintaining a successful retirement plan committee is that there are no formal job titles or descriptions. And yet it is vital that committee members have the qualifications necessary to administer and manage employee retirement plans.

For example, committee members should be properly trained to understand their role as fiduciaries. This means acting in the best interests of retirement plan participants and their beneficiaries—and not the plan sponsor. Offering both preliminary and ongoing training can reinforce this distinction in the minds of committee members for a more effective team.

Similarly, it’s important for committee members to stay informed about evolving regulatory issues, such as changes to ERISA, DOL, or IRS requirements. Quarterly training sessions can keep your team apprised of any changes and can also create a layer of accountability to maintain fiduciary responsibility. With the passage of SECURE 2.0, there are a number of important items to discuss for potential plan adoption.

Delegate Tasks Appropriately

One of the most important benefits of a retirement plan committee is the ability to delegate tasks to committee members. For instance, you could divide your committee into segments, each one handling such roles as fiduciary oversight, administrative processes, employee communications, and settlor functions.

Delegating these tasks can also help fine-tune your education and training initiatives. Some committee members will benefit from specialized legal and regulatory training, while others may be better served by learning more about plan options.

Dividing your committee’s responsibilities may also assist in bringing on new committee members. Those with more experience in their committee assignment can serve as valuable mentors for new members and can demonstrate the best practices of retirement plan management. Providing some historical context for prior plan decisions is an invaluable benefit to new committee members.

Reflect Your Company’s Diverse Demographics

Sixty percent of American organizations have some type of diversity, equity, and inclusion (DEI) program in place. But does your retirement plan committee reflect this commitment to diversity and inclusion?

Historically, access to retirement plans for people of color has lagged behind that of their white peers. Your committee can be a part of your pursuit of inclusion and an accurate reflection of the makeup of your workplace. That starts by populating your committee with representatives from every age group, ethnicity, gender, and socioeconomic background. These representatives can provide guidance on how best to serve the needs and concerns of all groups under your employ—and the benefit is that this guidance comes from your committee’s own lived experience.

Documentation and Transparency

Given your committee’s fiduciary responsibilities, it’s important to document your decisions and activities. Consider appointing a secretary to record agenda items for each meeting, then record the minutes of each meeting and any action items that rose to the surface.

This is especially true when your committee implements changes to your company’s retirement plan. These changes, as well as any salient discussion points that led to those proposed changes, should be carefully and clearly documented. 

Does your retirement plan committee operate under a committee charter? While it’s not legally required, a written charter can help you stay organized and delegate who has fiduciary responsibility. A charter can also contribute to your legal defense in the event of a lawsuit.

Comprehensive Retirement Plan Consulting 

Need a little more guidance? PlanPILOT is here to help! We offer a comprehensive approach to retirement plan consulting, and our consulting services can also keep your company up to date on the latest trends. The right advisors in your corner can help your organization deliver retirement benefits that serve the needs of participants while mitigating risk to your company. It’s a win-win! 

To get in touch, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com. We look forward to hearing from you!

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

8 Reasons Why You Should Consider Hiring an ERISA 3(38) Investment Manager

By Mark Olsen, Managing Director at PlanPILOT

Navigating the complexities of retirement plans requires a skill set that includes vigilance, attention to detail, and expertise. For plan sponsors, the main responsibility is twofold: safeguarding the financial well-being of their participants and adherence to regulatory standards. As the regulatory landscape evolves and the onus of legal compliance intensifies, it’s becoming more clear that it’s easy for a variety of mistakes to be made in the management of a retirement plan.  

To lessen these mistakes and increase overall plan effectiveness, it’s wise to consider adding a dedicated professional to assist with the plan. Enter the ERISA 3(38) investment manager—a specialist equipped to shoulder the weight of investment decisions, responsibilities, and fiduciary compliance. 

In this article, we explore eight compelling reasons to consider integrating a 3(38) investment manager into your retirement plan strategy, demonstrating how such a decision can foster not only compliance and efficiency but also optimal performance for your plan’s beneficiaries.

1. Reduced Liability for Plan Sponsors

When plan sponsors choose to work with a 3(38) investment manager, they delegate the fiduciary duties of managing the investment decisions, significantly reducing their liability. While not all fiduciary responsibilities can be transferred, the critical task of making and monitoring investment decisions can be. This allows sponsors to have greater assurance and shift their focus to other responsibilities such as administrative functions, participant engagement, and overall plan design, with the confidence that the plan’s investments are being managed by specialists who are assuming legal accountability for these decisions.

2. Access to Proficiency

The landscape of retirement plans is both complex and dynamic, requiring specialized knowledge to navigate effectively. A 3(38) investment manager brings not only a wealth of experience but also access to sophisticated analytical tools and resources. This professional skill keeps the plan aligned with the latest best practices and designed to meet both the current and future needs of participants.

3. Efficiency and Time Savings

Investment management is time-consuming, involving constant market analysis, selection of suitable investment vehicles, and ongoing adjustments to align with changing market conditions. By entrusting a 3(38) investment manager with these tasks, plan sponsors can reallocate their time to focus on broader business strategies or other pressing concerns. This partnership fosters a more efficient division of labor, whereby the investment manager handles the minutiae of investment management, and the sponsor leverages time savings for other critical operational areas.

4. Tailored Investment Strategies

Each retirement plan has unique goals based on the demographics of its participants, the company’s financial status, and its long-term objectives. A 3(38) investment manager can create customized investment strategies that account for these factors, aiming for improved financial performance tailored to the specific risk and return profiles needed by the plan. Personalized investment approaches can be the key to realizing specific financial outcomes and seeing the long-term growth of the retirement plan’s assets.

5. Clear Responsibility and Decision-Making

A 3(38) investment manager assumes full discretion over the investment choices of the plan, providing a clear line of responsibility. This distinct demarcation eliminates any confusion over roles and helps to streamline decision-making processes. It simplifies the investment strategy and minimizes the risk of internal conflicts by clearly designating the investment manager as the responsible party for all investment decisions.

6. Regular Monitoring and Reporting

Continuous oversight of investment performance is crucial, and a 3(38) investment manager takes on this responsibility, providing plan sponsors with comprehensive, regular reports on the health of the chosen investments. These reports can include benchmarking investments, reviewing investment policy statements, and reviewing share classes.

7. Cost-Effectiveness

There are fees associated with hiring a 3(38) investment manager, but these are often outweighed by the benefits. Improved investment performance, reduced legal risks, and decreased operational burdens for the plan sponsor can lead to overall cost savings. Additionally, the scale of investments managed by these professionals can lead to reduced costs through institutional pricing and the avoidance of common pitfalls that can be costly for less experienced managers.

8. Enhanced Plan Governance

Finally, the addition of a 3(38) investment manager can significantly strengthen the governance and oversight of a retirement plan. This role brings an extra layer of fiduciary oversight, helping to make all investment decisions with the best interests of participants as the guiding principle.

Take the Next Step: Unlock the Benefits of a 3(38) Investment Manager 

Managing the multifaceted world of plan sponsorship requires skill, foresight, and a deep understanding of industry best practices. If you believe your firm could benefit from additional help, consider hiring a 3(38) investment manager so you are well equipped to tackle these challenges head-on. 

If you think working with a dedicated professional can help you become a better plan sponsor, let’s connect. A partnership with PlanPILOT can be the catalyst you need. Reach out at (312) 973-4913 or get in touch directly via mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

The 3 Biggest Investment Mistakes I See Plan Sponsors Make

By Mark Olsen, Managing Director at PlanPILOT

Managing a retirement plan demands attention to detail, foresight, and unwavering commitment. Financial advisors and plan sponsors bear the weight of managing funds that represent not only a lifetime of savings for many participants but also their aspirations for a comfortable retirement. While the financial landscape continually shifts and new best practices are developed, it’s possible for certain lapses in oversight to occur and impact the integrity of a retirement plan, especially as it relates to investments.

In my three decades of experience, I’ve seen a number of mistakes with retirement plans. Sometimes even seasoned plan sponsors fall for certain investment pitfalls. As we delve deeper, we’ll highlight three specific mistakes in the realm of investments that, while they might appear minor at first glance, can result in considerable financial and legal consequences over time. Addressing these errors is essential. In doing so, plan sponsors not only elevate the prospects of their participants but also underscore their commitment to diligence, transparency, and proficient investment management.

1. Not Documenting and Benchmarking Your Plan’s Specific TDF (Target-Date Fund) Funds

Benchmarking your plan’s specific target-date funds (TDFs) is crucial for myriad reasons, with cost savings being one of the most significant. By failing to benchmark, plan sponsors might be inadvertently sidelining better-performing funds that come with lower fees. This direct oversight could mean participants’ retirement savings aren’t growing at their full potential, making it harder for them to realize their retirement goals. The fees specific to target date funds has been central in the fiduciary lawsuits.

Furthermore, transparency becomes an issue when decisions about fund selection aren’t documented. Participants, auditors, and stakeholders might be left in the dark about why certain TDFs were chosen over others. 

Beyond the lack of clarity, there’s also the looming risk of fiduciary breach. As a fiduciary, we want to act in the best interest of participants. Yet without proper benchmarking and clear documentation, proving this fiduciary prudence becomes challenging and can lead to unnecessary complications down the road.

2. Not Updating (or Not Even Creating) an IPS (Investment Policy Statement)

An investment policy statement (IPS) is the backbone of a retirement plan’s investment strategy. Without a systematic process for reviewing and selecting investments, inconsistencies and haphazard decisions can creep in. A clear, updated IPS not only provides a road map for making sound investment decisions but also shields plan sponsors from potential legal ramifications by demonstrating due diligence and prudent decision-making, verifying they’re meeting their fiduciary responsibilities.

A missing or outdated IPS is also a potential cause of confusion for everyone involved. Advisors might find it hard to justify their investment decisions, while plan participants could be left not understanding the logic behind the funds offered. Inconsistencies could arise when there’s a need to evaluate underperforming funds or decide on their replacements. A well-maintained IPS reviewed regularly can aid in the smooth functioning and credibility of the retirement plan.

3. Not Regularly Reviewing the Share Classes Offered to Allow the Availability of the Lowest-Cost Options

One of the essential aspects of offering a retirement plan is ensuring participants have access to the most cost-effective investment options. Share classes in mutual funds can vary, and each class comes with a unique fee structure. Not all plan sponsors take the time to revisit these share classes periodically, potentially leading to participants shouldering higher fees than necessary. Over time, these added costs can erode the returns and compound to sizable reductions in participants’ savings.

In addition to the monetary implications, there’s also the matter of fiduciary responsibility. Offering the most cost-effective options falls squarely within this duty. Overlooking this critical aspect not only harms participants but also exposes sponsors to potential litigation and reputational risks. Maintaining a watchful eye on share classes keeps participants receiving the best value for their contributions.

Stay Ahead As a Plan Sponsor. Partner With Us.

Leading the way as a plan sponsor comes with its challenges, complexities, and ample room for mistakes. At PlanPILOT, we’re committed to partnering with you, equipping and informing you to make the best decisions for your plan participants.

If you’re determined to stay ahead in your sponsorship role and provide unmatched retirement solutions, let’s collaborate. You can schedule a time for us to meet at (312) 973-4913 or send me an email at mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

The Top 5 Mistakes I See Plan Sponsors Make

By Mark Olsen, Managing Director at PlanPILOT

In the world of retirement plans, ensuring favorable outcomes for both sponsors and participants hinges on sidestepping a myriad of potential mistakes. I’ve previously shared my top lessons for retirement plan sponsors, which are certainly important to focus on. Yet it would also be helpful to know not just what we want to do, but what we want to avoid. To aid sponsors in this endeavor, we have crafted a two-part series that examines the most common errors and offers guidance on how to prevent them. 

In this first chapter, we zero in on plan administration, a foundational aspect of orchestrating a successful retirement plan. Taking a proactive and risk-minimized approach to plan administration will serve as a springboard for our next article into the nuances of investments. That said, here are five mistakes I see made frequently with regard to plan administration.

1. Lack of a Diverse Plan Committee

A robust retirement plan starts with a diverse plan committee, encompassing a range of perspectives to foster a holistic strategy that meets the needs of all participants. Unfortunately, many committees fall short, leveraging a narrow viewpoint that fails to resonate with a varied participant base. 

To avoid this pitfall, we advocate for the formation of a committee rich in diversity, tapping into various professional backgrounds, ages, genders, and ethnicities. This approach not only nurtures well-rounded discussions but also facilitates informed, encompassing decisions that cater to a broader spectrum of needs and preferences. 

2. Not Benchmarking and Reviewing Your Plan Every 3-5 Years

In a rapidly evolving financial environment, static strategies often lead to diminished outcomes. A critical yet frequently overlooked practice is the regular benchmarking and reviewing of your retirement plan, ideally every 3-5 years. This process not only helps keep your plan fresh and aligned with current trends but also aids in keeping the fees in check, preventing participants from being overburdened with unnecessary costs. 

Regrettably, it is common to see plans gathering dust, with outdated strategies that no longer serve the best interest of the participants. Stale plans can result in higher fees and potentially lesser returns, impeding the financial growth of the plan’s beneficiaries. 

3. Not Understanding and Explaining Employee Eligibility

One aspect of plan administration that can often be misinterpreted or overlooked is understanding the eligibility criteria for employee participation in retirement plans. Proper comprehension of employee eligibility not only ensures you are in compliance with regulatory mandates but also fosters inclusivity and fairness in the retirement plan you offer. Just as you educate employees about investment options and learning about risk literacy, you should also educate on employee eligibility.

Mistakes in this area can potentially lead to legal ramifications, not to mention dissatisfaction and mistrust among your workforce. It is not uncommon to witness scenarios where inadequate knowledge about employee eligibility results in missed opportunities, hindering employees from reaping the benefits they are entitled to. 

4. Not Having Frequent Committee Meetings and Recording Notes

A well-oiled machine operates smoothly with regular check-ins and adjustments; similarly, a retirement plan thrives on frequent committee meetings where vital decisions are made and strategies are formulated. However, it’s not just the meetings that are crucial; documenting the discussions, decisions, and action plans formulated in these meetings stands equally important. 

Unfortunately, some plan sponsors overlook the need for documentation, creating a void of accountability and potentially fostering environments ripe for inconsistencies and misunderstandings. This not only dampens the effectiveness of the meetings but can also entail legal repercussions.

5. Late Remittance of Employee Deferrals

Timely remittance of employee deferrals is more than a regulatory requirement; it’s a cornerstone of trust and reliability in a retirement plan. Delaying these remittances can not only attract regulatory scrutiny and penalties but also erode the faith employees place in the plan, possibly affecting their financial stability in retirement. 

Ready to Sidestep These Common Mistakes? Let’s Talk.

Navigating the intricacies of plan administration doesn’t have to be a solitary journey. At PlanPILOT, we stand ready to guide you every step of the way, helping you avoid the common pitfalls that can hinder the success of your retirement plan. 

If you’d like to minimize mistakes and maximize your retirement plan, we’d love to help. You can call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.

Raising Risk Literacy in Sponsor Plan Oversight

By Mark Olsen, Managing Director at PlanPILOT

Plan sponsors play a pivotal role in helping participants understand and pursue their ideal retirements. One crucial way they do that is through well-rounded and accessible education, especially in areas where the general public lacks awareness or understanding. However, there is a crucial aspect of participant education that has often been given less attention: risk literacy. 

Although many plan sponsors excel in providing foundational knowledge about retirement plans, the critical role of comprehending the risks inherent in financial decision-making is often undervalued and overlooked. This doesn’t represent a setback but, rather, a significant opportunity. By integrating risk literacy into participant education, plan sponsors can arm their participants with the tools to make wiser, more comprehensive financial choices. 

The Current State of Plan Sponsor Education Is Incomplete

For years, plan sponsors have conscientiously been imparting essential knowledge on retirement plans. This includes understanding the basics of retirement savings, the mechanics of contribution matching, the importance of consistent saving, and the variety of plan options available. They help keep participants well-versed on tax advantages, withdrawal rules, and the potential benefits of diversifying their investments.

However, these educational efforts, while undeniably important, fall short of providing a comprehensive understanding of retirement savings. The element that is frequently missing (and arguably as important as the rest) is risk literacy. This absence creates a blind spot for plan participants. They may be knowledgeable in how to save but lack the critical understanding of how to make informed decisions that take into account the inherent risks associated with financial investments. These risks run the gamut from volatility risk to inflation risk to interest rate risks—and all impact the unpredictable terrain of financial markets. 

How Risk Literacy Aids Good Financial Decisions

Understanding risk literacy is not just an optional skill; it’s an essential part of making sound financial decisions. It helps participants distinguish between different types of investment risks, and equips them with the knowledge to assess the potential impact these risks might have on their retirement savings. 

Yet according to TIAA in a personal finance study, comprehending risk is one of the lowest rated financial subjects, with only 35% of questions surrounding risk answered correctly. The benefits can be significant, according to Annamaria Lusardi, a George Washington University professor, who says, “Having higher risk knowledge is correlated with being less likely to be financially fragile.”

Furthermore, risk literacy encourages a deeper understanding of concepts like probability and uncertainty—critical components in financial decision-making. When participants can analyze the likelihood of different outcomes, they’re better prepared to handle fluctuations in the market. They can appropriately calibrate their investments, striking a balance between risk and return that matches their individual tolerance for risk and their long-term financial goals. 

Risk literacy also fosters resilience in the face of financial upheaval. A risk-literate participant may not be easily swayed by market volatility, but can have the confidence to stay the course, understanding that short-term fluctuations are a normal part of the investment landscape. By promoting risk literacy, we empower plan participants with the tools to manage their retirement savings effectively, making them more financially stable in the long run.

How to Incorporate Risk Literacy Into Participant Education

Incorporating risk literacy into participant education may seem like a daunting task, but with a well-structured approach, it can be achieved. The first step involves expanding your educational material to include a module on the basic concepts of financial risk and uncertainty. This includes market risk, credit risk, interest rate risk, and the risk-return tradeoff. To effectively teach these concepts, consider leveraging interactive tools, like risk simulators or scenario-based activities. Real-life examples and case studies also serve as powerful tools, offering participants the much-needed context to relate abstract concepts to their own financial decisions. 

The next phase involves the evaluation and refinement of your approach. Regular assessments or quizzes can help gauge participants’ understanding and application of risk literacy, identifying areas that might need more attention. It’s crucial to cultivate an environment of open dialogue around financial risks, where participants feel comfortable asking questions, expressing concerns, and seeking additional help. Not only can this enhance understanding, but it can also empower participants to take control of their financial futures with greater confidence. With these strategies in place, your education program won’t just impart knowledge on retirement plans, but can also equip participants with the skills to navigate the financial landscape effectively.

Empower Plan Participants Through Risk Literacy

Introducing risk literacy into your curriculum is more than just adding another module—it’s about empowering your participants to make informed decisions for their financial future. By understanding risk and uncertainty, they’ll not only have the knowledge to make more prudent financial decisions, but also the confidence to navigate the complexities of the financial world.

At PlanPILOT, we help plan sponsors develop a well-rounded, customized educational program that helps meet your fiduciary duty and equips plan participants to make thoughtful financial decisions. If you’d like to risk literacy into your educational program for participants, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.

About Mark

Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.