Providing your company or organization with a defined benefit or defined contribution retirement program is advantageous for both the business, and the employee. Options such as the 401(k) and 403(b) allow your workforce tremendous tax savings and investment opportunity.
Administering these plans isn’t always easy as the fiduciary.
By definition, the named fiduciary maintains overall responsibility for the retirement plan. This is typically the employer. As that primary sponsor, companies must realize they are acting on behalf of their most important asset in their own people, and do so with prudence.
Another reason to take this role seriously is liability. Plan participants can file a lawsuit against an employer for claims such as excessive fees, poor fund choices, and other fiduciary failures that may result from improper action or neglect. There were several major court cases in 2017 related to fiduciary responsibility; and the company or employer is generally responsible for reconciling any resulting loss or profit with participants.
The Employee Retirement Income Security Act of 1974 (ERISA) sets a standard of conduct for those who manage an employee benefit plan. This policy should serve as the series of guidelines for organizations to meet obligations, while mitigating risk.
One other obvious factor around retirement plans to consider is the dependency on a solid investing strategy. Expertise in the investment aspects of fiduciary responsibility is essential; portfolio diversification minimizes the threat of large losses, and also adds a layer of liability protection as employees direct the investments within their own plan accounts (ERISA, Section 404(c)).
If you’re in finance or human resources and influence retirement program decisions or general plan management, there are measures you can take to not only honor your company’s fiduciary responsibilities, but also maximize the experience and potential return for your employees.
1. Plan Documentation. According to ERISA, the following must be provided to participants and beneficiaries:
2. Establish Clarity Around Roles and Responsibilities. Acting as retirement plan fiduciary works best when roles are clearly defined and there is interdisciplinary oversight over the collective plan areas. There also needs to be full transparency around costs and duties.
The primary roles, according ERISA, are:
Beyond these essential positions, we advise companies to set up an oversight committee that consists of functional leaders from finance (CFO or controller), and human resources (CHRO, VP of HR, HR Director), and managers of actual teams/people.
3. Make A Commitment. With all roles established, this combination of stakeholders should set aside time to meet periodically to review and consider overall plan strategy, investment objectives, plan documentation, and program costs.
If your organization could benefit from guidance or support with retirement plan consulting of investment advice, please contact Alesco Advisors to learn more about our education, consulting, and compliance services.