Stewardship and Leadership
First quarter provides an opportunity for a fresh start and a new outlook. In the context of providing services to a retirement plan, we believe it’s a chance to naturally reframe the retirement plan conversation with plan decision makers. Rather than having another ‘fiduciary responsibility and liability’ talk, we propose to think of fiduciary duties it in the context of stewardship and leadership.
Plan sponsors are entrusted with a task to manage the plan in the best interest of participants, i.e. to be plan stewards. At the same time, they are in a unique position to impact participant retirement outcomes by enabling savings behaviors and implementing tools that effect change, something that leaders do. Being a steward and a leader is more relatable than an academic notion of a fiduciary. Each one of us can think of at least one person who was a good leader, a good steward. We jotted down a few ideas and resources to help you implement them:
Stewardship – paying attention to these areas will help plan decision-makers run the plan in line with what the Department of Labor and the Internal Revenue Service like to see.
• Tune-up the line-up (and review the Investment Policy Statement):
o Set up a recurring meeting to review investment line-up.
o Evaluate the number of investments: according to industry experts, it is best to include 10-12 core fund options with additional access to managed portfolios, such as lifestyle or target fund. Adding more options inhibits participant engagement.
o Check how plan options stack up when compared to their benchmarks. Many find the fi360 report particularly compelling. This also may be a good opportunity to evaluate benefits of using a third-party 3(21) advisor or 3(38) investment manager to offer plan investment monitoring services.
o If there is an investment policy statement (IPS), review it to confirm its consistency with the process used for selection and monitoring of funds; update as necessary. Best practices suggest updates at least every five years. If no IPS is used, consider its merits: the DOL has long-held that maintaining and following an IPS is coincident with the duty of prudence because it outlines a ‘procedurally prudent’ process. Here is a sample 401(k) plan IPS.
• Take stock of plan services and fees: plan sponsors are asked to make sure that the fees paid by the plan are reasonable.
o Identify all parties that provider services to the plan (e.g. investment platform, third-party administrator, 3(21) or 3(38) service provider, auditor).
o Confirm that the client has current plan-level fee disclosure documents, 408(b)(2), for each of the providers. Here’s a sample log to stay on top of this requirement.
o Review contracts at least every three years to check that the fees are reasonable based on plan type, size, service needs (have they changed?) and are comparable to fees paid by similar plans for similar services. Take a look at this checklist to determine fee reasonableness.
o For participant directed accounts, confirm that participant-level fee disclosures, 404(a)(5), were timely distributed and there is an annual process to ensure recurring notification.
• Review the process: the Internal Revenue Service has always emphasized that solid internal controls play key part in plan compliance.
o Lately, the Agency increased its emphasis on importance of consistent procedures when maintaining a compliant retirement plan.
o Lack of internal controls, according to the IRS, correlates to high incidences of plan errors and is a red flag for an agent conducting a plan audit. Frequently, responses to questions about internal controls determine the scope of plan audit (typically the Service probes a handful issues spanning one to two years, but may expand its inquiry if there are signs of possible non-compliance).
o Check for procedures for employee data collection, enrollment, salary deferral and loan repayment deposit timing, loan procedures, payout to retired and terminated participants, participant notices, as well as document update and retention practices. Here’s a checklist to get you started. In addition, the IRS published plan-specific checklists which highlight the most common traps, how to identify, and fix them.

As always, retirement solutions consultants are ready to assist as you prepare for meetings with plan sponsor clients and prospects alike. Call us at (888) 926-0600 or click here to connect online.