Whether or not you’re in the habit of making New Year’s resolutions, this is a time of year when reassessments seem appropriate, and perhaps in no area as much as that of retirement plan administration. Many find themselves in the role of plan sponsor (or plan committee) with no background, limited training, and far more responsibility than they may appreciate at the outset.
For those of you who find yourself starting the year with new plan sponsor clients, or new members of the plan committee, or perhaps even incumbents who could benefit from some New Year’s resolutions, here’s five things every plan sponsor should know:
How much your 401(k) plan costs.
Okay, fees are just one of several factors plan sponsors need to consider, but when the fees for services are paid out of plan assets, there is an obligation to understand the fees and expenses charged. This is important because you are expected to ensure that the fees paid and services rendered to the plan are reasonable. It’s hard to know if the fees paid are reasonable if you don’t know what they are. Oh, and even if the plan fees were determined to be reasonable in the past, they need to be monitored. Things change over time, after all.
Need some help? Check out this information from the Employee Benefits Security Administration.
The services that you receive for those 401(k) fees.
As noted above, determining reasonability of fees and services means not only understanding the fees paid, but also the services provided for those fees. Larger fees may, of course, be reasonable for more expansive or comprehensive services. But also note that paying big fees for unnecessary services could be considered unreasonable.
How much of your 401(k) plan fees/costs go to whom.
Arguably, knowing how much who is being paid for what is required to assess reasonableness. But the Department of Labor now requires that “covered service providers” (CSP) furnish in writing “the services to be provided and all direct and indirect compensation to be received by a CSP, its affiliates, or subcontractors. You can find out more about these requirements here.
Who the plan fiduciaries are.
Odds are, if you as a plan sponsor are reading this, you are one. But don’t take my word for it. Check out “Meeting Your Fiduciary Responsibilities.”
The responsibilities — and obligations — of plan sponsors.
Since you (probably) are one, you should make sure you know what your responsibilities are, the extent of your personal liability, and what kind of insurance is maintained by your employer to address that exposure.
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. In addition to paying only reasonable plan expenses, these responsibilities include acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them, following the terms of plan documents, and carrying out their duties prudently.
That brings up a sixth item for our plan sponsor list: If a plan fiduciary lacks the expertise to fulfill those duties, they should, of course, consider hiring a professional to help them.