Tips for creating a prudent governance process for your retirement plan

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. 

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.   

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.

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.   

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.