By Mark Olsen, Managing Director at PlanPILOT
When you offer retirement and healthcare plans to your employees, you’re giving them much more than just a supplement to their paycheck. You’re helping them build foundational security to protect themselves and their families. Great benefits packages often encourage loyalty from your team so they work for you for years to come—which is good for both you and them.
But plan sponsors have a lot to manage and are actually taking on risk by offering these benefits. Fulfilling your obligations as a plan sponsor is complex because there are rules and regulations you must follow, even though you’re not an expert in this area. And because these plans are designed to offer security, individuals and families may come after you if they find their security needs have not been met.
So what can you do about this?
What Are Your Obligations?
First, it’s important to understand your basic obligations. Perhaps most obviously, you’re responsible for paying your employees the retirement income they’re entitled to when they leave your company. You may have a vesting schedule in place to incentivize talented people to stay and work for you, so you must fully understand and adhere to the vesting schedule you’ve put in place. Other obligations include:
- Acting solely in the best interests of the plan participants and their beneficiaries
- Writing your plan to comply with all requirements in the Internal Revenue Code
- Choosing whether you will handle the investment decisions for retirement plans or if you will outsource this task to a third party
- Ensuring that any third-party managers adhere to the Best-Interest Contract Exemption (BICE)
- Reviewing your plan annually and staying up to date on changes to retirement or healthcare laws and regulations
- Keeping up with your ongoing plan maintenance responsibilities
Clearly, there are many obligations plan sponsors must adhere to when they provide and maintain benefits plans for employees. Even so, simply knowing these obligations exist may not clarify how you should go about fulfilling them. But if you are not adhering to your obligations, you’re putting yourself and your company at risk.
What Are You At Risk For?
As of data collected in 2020, there has been an increase in lawsuits against plan sponsors for charging excessive fees. (1) Excessive-fees claims hold that plan sponsors are paying inflated fees to recordkeepers and investment managers for investments that underperform their benchmarks. When this happens, plan participants claim that the fiduciary duty has been breached and that these breaches cost them millions of dollars in retirement benefits.
Although the emergence of these claims initially targeted very large 401(k) plans with millions of participants, claims made in past years show that plans of any size and any type may be at risk. (2) So if you’re a plan sponsor, you should be aware that excessive-fees claims could be made against you in the future.
How Can You Minimize Risk & Guard Against Litigation?
So what can you do to minimize your risk? At the outset, you should begin with an organized process to guide your fiduciary responsibilities.
Setting up a plan committee made up of expert finance, HR, and operations professionals will lessen the chance that you miss fulfilling obligations outside your area of expertise. The committee should establish governing documents and an investment policy statement (IPS) as the benchmark for all decisions made regarding investment selections, fund reviews, fees, and performance.
Additionally, the investment process should be well documented to show that you have done all your due diligence in ensuring that new decisions are in the best interest of plan participants. Your plan committee should also conduct periodic oversight reviews to evaluate service providers and ensure that fees remain reasonable while the plan is on track to meet its performance goals.
Let Us Help Guide You
When you started your business, you may not have anticipated all the complexities you’d be held accountable for when offering benefits packages to your employees. But offering these benefits is an important part of your company culture and ability to retain talented people.
So you need an expert on your side.
At PlanPILOT, we help plan sponsors meet and exceed their fiduciary responsibilities by providing you with proper risk management solutions and advice. Don’t take a chance and put yourself at undue risk simply because you’re not an expert at plan sponsorship. Call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com to schedule a complimentary meeting today.
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) and 403(b) plan sponsors. Drawing on over two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b), and defined benefit plans. 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 Pensions & Investments, Stable Value Investment Association, and CUPA-HR.
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