Are you following fiduciary best practices?

Paul McEwan | May 3rd, 2011

If you operate a retirement plan, you’re probably well aware that your position as a fiduciary is facing increasing scrutiny – and increasing liability and risk. In addition to increasing rules from the Department of Labor, recent lawsuits and settlements have highlighted the “significant potential liability for breach of fiduciary duty.”

However, plan sponsors who have thought-out processes and policies in place and document their actions can better protect themselves from accusations that they did not fulfill their fiduciary responsibility. Here are six actions fiduciaries can use as they work to fulfill their fiduciary duty.

  1. Determine if you have fiduciary responsibility, and who your co-fiduciaries are. Plan sponsors are always plan fiduciaries.  Do your plan service providers serve as co-fiduciaries?  Having plan service providers that are willing to serve as co-fiduciaries is a great way to eliminate conflicts of interest, since plan fiduciaries must serve solely in the best interest of plan participants.  If you haven’t done so already, you will need to obtain the appropriate fiduciary insurance and ERISA fidelity bonds.
  2. Create a Retirement Plan Committee. This group will have the power to act on behalf of the plan and solely in the best interest of participants, holds regular meetings and documents its discussions and decisions in minutes.
  3. Write an Investment Policy Statement.  Your investment policy statement becomes the foundation to select, monitor and replace funds in your plan.
  4. Thoroughly understand the contracts, services and expenses of your plan. Fiduciaries are expected to not only understand the plan services required for their plan, but also to understand their plan fees and ensure they are reasonable. Plan fees can be paid by the plan, the plan sponsor or the participants, and can be based on a flat amount, a per-participant amount or as a percentage of assets.  In addition, plan fiduciaries should make sure fees actually paid agree with existing service agreements. Plan bench marking reports can help you compare plans of similar size in an apple-to-apples format. These reports also do a great job of identifying where you may be overpaying for certain plan services as well as identifying where service providers may be receiving revenue sharing payments from other service providers, creating excessive cost and conflicts of interest.
  5. Understand your plan. Thoroughly understand your plan, and make sure that you and any co-fiduciaries follow the plan document and the process outlined in your IPS. The IRS and Department of Labor have many regulations that must be followed in order to maintain your plan’s qualified tax status and avoid costly penalties.  That includes making sure employee contributions are deposited on a timely basis.
  6. Obtain assistance. Fiduciaries who do not have the expertise to fulfill their duties are expected to act as a prudent person would – and seek assistance from dedicated retirement plan advisors.

Plan fiduciaries don’t have to shoulder their fiduciary responsibilities alone. By following industry best practices and obtaining the assistance of knowledgeable professional advisors, fiduciaries can better protect themselves from breach of fiduciary duty claims. Retirement plan professionals, like those at Rea & Associates, Inc., can assist you in the plan design and administration process. Talk to your accounting professional to learn more.

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