Tips for creating a prudent governance process for your retirement plan
What’s one of the most important things to remember as a plan fiduciary? It’s all about process and documentation. Because the way you reached your decision often matters more to the DOL and the courts than the outcome itself. Here are some best practices to consider to help you build a prudent process for your retirement plan and manage your fiduciary risk.
Assessing the health of your existing plan governance
A good place to start is by asking the following questions:
- Are the right people within your organization assigned to manage your plan’s day-to-day operations?
- Do they understand and acknowledge their roles and responsibilities?
- Do they understand what it means to be a plan fiduciary if applicable?
- Are there written policies and procedures?
- Is there a retirement plan committee in place to oversee the plan?
If you can answer yes to these questions, you’re on the right path. Any no’s represent potential gaps in your governance process that you’ll want to address.
The importance of retirement plan committees
If you don’t have a retirement plan committee, it’s something to strongly consider to help you oversee your four main areas of fiduciary responsibility:
- Managing your plan’s operations
- Selecting and monitoring your service providers
- Selecting and monitoring your investment options
- Delivering required disclosures to participants
This well-accepted practice can help you:
- Make more informed decisions as members bring different experiences, expertise, and perspectives—which should help you satisfy ERISA’s prudent person standard
- Demonstrate that you have prudent policies and procedures in place to manage your plan
- Document the rationale for plan decisions and actions taken
You can have a single committee or separate ones for investments and plan administration. Fifty-four percent of surveyed plan sponsors have only one committee, while 46% split up the responsibilities.1 Your approach will depend on many factors, including the size and complexity of your plan.
Let’s take a closer look at how you and your plan committee might build a more effective governance process.
Fiduciary responsibility #1: managing your plan’s operations
Your plan document dictates how your plan operates. And you must follow it at all times to stay in compliance and avoid plan qualification issues for you and your participants.
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Fiduciary responsibility #2: selecting and monitoring your service providers
In addition to your in-house benefits team, you’ve likely teamed up with service providers to perform certain tasks. And while these partnerships may help ease your fiduciary duties, they don’t eliminate them. You’re still responsible for choosing providers you believe are the best fit for your plan and for monitoring them regularly.
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Fiduciary responsibility #3: selecting and monitoring your investment options
Similarly, you’re responsible for creating a diversified investment lineup for your plan and for monitoring the performance of each investment option. Fortunately, this is an area where your plan’s financial professional may provide valuable assistance. So be sure to tap into them as a resource. Besides helping you evaluate different investments, they may suggest best practices for selecting and monitoring the investments in your plan.
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Fiduciary responsibility #4: delivering participant communications
You’re required to provide participants with certain disclosures detailing plan and investment information, including fees, to help them make informed decisions. Your plan’s recordkeeper or third-party administrator may be able to help you create and deliver these materials. So be sure to involve them in your discussions.
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Make proper plan governance a top priority
With the increasing number of participant lawsuits, complex regulations, and DOL enforcement activities, proper plan governance is more important than ever. It not only helps your plan run smoothly; it’s your first best defense to demonstrate that you acted prudently, regardless of the outcome. So remember, it’s all about process and documentation.
Important disclosures
This piece is not intended to be an exhaustive review of fiduciary duties under ERISA. The objective is to highlight the key responsibilities of a plan fiduciary and present the challenges that plan fiduciaries may face in discharging their duties. John Hancock cannot provide legal advice concerning your plan or your role as plan fiduciary, and the information included should not be taken as such. If legal advice or other expert assistance is required, please consult your legal counsel.
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
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