Plan trustees who also serve as fiduciaries tend to make the same kinds of mistakes. Writing in the most recent issue of NAPA Net the Magazine, Steff Chalk offers some suggestions to help sponsors and fiduciaries avoid potentially damaging errors.
Chalk lists three common mistakes that plan sponsor trustees make while serving as fiduciaries:
- Failing to properly implement self-directed brokerage features within a tax qualified plan.
- Not comprehending the executed contracts of the plan’s service providers.
- Mismanagement of the company match program.
Chalk says that committees often add self-directed brokerage features to plans, but this is like “handing a loaded gun to their entire workforce.” Plan participants, he writes, may be ignorant of the power that an authorization like that has, especially if trustees don’t take the time to properly safeguard their plans and keep them on the right side of the suitability rules.
“Mismanagement of plan assets is a strong accusation. Blunder is a softer word. But the end result is the same,” Chalk writes. “Many 401(k) plans are not using the science behind behavioral finance to create the best possible outcomes for plan participants.”
He also says that plan trustees need to have a discussion with their legal counsel about the intricacies of every vendor contract associated with their plan. Too many employers, he says, transfer fiduciary responsibility without adequately explaining which contractors are responsible for what. This creates a situation, Chalk says, where trustees are putting themselves at legal risk if something goes wrong without them even knowing it.
Finally, Chalk says that too many fiduciaries mismanage their plan’s most attractive feature: the employer match. He says fiduciaries often set the match and forget about it, failing to show any willingness to adjust the contribution to respond to varying levels of participant engagement. Like with the other two problems, this is an error born out of neglect and not anything sinister, but in Chalk’s estimation, these kind of mistakes have the potential to be even more damaging.
Click here to read Chalk’s entire column; click here to download the entire 68-page Winter issue.
