Plan sponsors know that there are more liabilities and regulations to worry about than ever before. There are constant concerns about IRS rules, fiduciary responsibilities, and tax law changes. Failure to comply with regulations can be an expensive disaster, with the ever-looming threat of losing your plan’s qualified status.
In my work with hundreds of retirement plans, I’ve come across a variety of errors and mistakes. Most of the time, we can identify and correct plan errors before they cause major issues. But once in awhile, there are complex problems that we can’t solve. Here are the top five mistakes I’ve seen plan sponsors make:
1. Failure to Follow Their Investment Policy Statement
The goal of a retirement plan is to help participants save for retirement through investments. Plan sponsors have a significant responsibility to work with an advisor to select appropriate investments, replace poor performers, and verify that the fees are reasonable. It’s critical to create and follow an Investment Policy Statement to keep your plan’s investments up-to-date and within DOL guidelines.
2. Not Understanding Their Role as Fiduciary
Even if they aren’t aware of it, many of the actions involved in operating a plan give the person performing them the role of a fiduciary. This means that they are required to adhere to ERISA rules for a fiduciary including:
- Acting solely in the interest of plan participants
- Carrying out their duties prudently
- Following the plan documents
- Diversifying plan investments
- Paying only reasonable plan expenses
ERISA requires expertise in a variety of areas, such as plan administration and investments. If they lack that expertise, a fiduciary is obligated to hire someone with appropriate professional knowledge to oversee those functions.
3. Not Having a Fidelity Bond
In general, plan sponsors must be covered by a fidelity bond. A fidelity bond is an insurance instrument that protects the plan against losses. The plan’s fidelity bond must cover at least 10% of plan assets with a minimum of $1,000 and a maximum of $500,000. Not having a fidelity bond could potentially increase the chances of a DOL audit.
4. Not Reviewing Service Providers
As part of a plan sponsor’s obligation to have only reasonable plan expenses, they are required to evaluate the performance and fees of their service providers. For the arrangement to be deemed reasonable, service providers must provide updates and reports regarding their fees and performance. Make it a habit to review annual updates from your service providers to ensure their performance and fees are in the best interest of your participants.
5. Not Staying On Top of Changes
April 30, 2016 marked the IRS deadline for employers restate their 401(k), profit-sharing, or other defined contribution retirement plans. Plans that did not comply with the restatement deadline could lose their qualified status or face fines of up to $15,000. It’s the plan sponsor’s responsibility to stay up-to-date on new requirements and comply promptly.
The retirement plan landscape is as complex and challenging as ever. On top of their other responsibilities, plan sponsors have the difficult job of acting as their plan’s fiduciary. Partnering with an experienced and qualified retirement plan professional make help reduce fiduciary liability and avoid costly mistakes. To learn more about how we help plan sponsors, give me a call today at (312) 973-4911 or email us at mark.olsen@planpilot.com.
About Mark
Mark Olsen is a Senior Consultant 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 within the industry and speaks at national conferences including Pensions & Investments, Stable Value Investment Association, and CUPAHR.
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