401(k) Retirement Plan Must Know Items For Every Plan Sponsor To Consider

AVON, Conn. - May 26, 2015 - PRLog -- A lot of company’s offer their employees the benefit of a company sponsored 401(k) plan.  Unfortunately, the plan sponsor is usually under informed about their ongoing fiduciary duty and involvement when making decisions regarding the 401(k) plan.  The plan sponsor is the fiduciary unless they use their fiduciary duty to delegate or share this responsibility with a 3(21) or 3(38) appointed professional.  If the plan sponsor does not use their power to relieve themselves of their fiduciary duty then they are liable and at risk for any actions or non-actions within the plan.

If you are a plan sponsor or trustee, you are most likely in a fiduciary position when it comes to the participants and beneficiaries of the plan. As a fiduciary you are responsible for:

·        Making decisions that are in the best interest of members of the plan.

·        Following the Summary Plan Document.

·        The diversification of investment options within the plan.

·        Minimizing expenses to defraying the costs of the plan and its investments.

·        Monitoring the investment performance within the plan.

·        Replacing an investment that is no longer appropriate for the plan.

·        Using the “prudent person” rule when acting as the fiduciary of the plan.

·        Monitoring all contributions (employee and employer).

·        Plan member education and investment option information.

·        Making sure the plan document is being updated to incorporate any changes to the plan and changes in the law that would affect or influence the plan.

As you can see from the list above, acting as a fiduciary brings added liabilities.  As a fiduciary, your role is ongoing.  You need to be informed and act as needed to reduce your liability and keep the plan compliant.  This is why a lot of plan fiduciaries and trustees hire a registered investment advisor to relieve themselves of some of their fiduciary duties. Unfortunately, for a lot of 401(k) plans that are under $20 million in assets and under 100 employees in size, finding a financial advisor that has the ability to act as a fiduciary for their plan can be a tough find.

When searching for a service provider it is important to verify that they will relieve you of some or all of your fiduciary responsibilities.  Here are some items to consider and some to potentially avoid when selecting a plan service provider:

·        Does the firm have fiduciary liability insurance? 3(21) or 3(38) coverage.

·        Are they willing to sign off on the form 5500 as a fiduciary?

·        What is the process in determining plan investments and ongoing communication?

·        How many times will they be on site to provide employee education?

·        Investment and plan fee structure options available.

·        Beware of designations that infer a fiduciary responsibility without the proper insurance coverage.

·        Beware of companies that tout asset under management as a reason to hire them.

·        Beware of firms that refuse to sign off on the form 5500 as a fiduciary.

·        Beware of firms that refuse to give at least one reference.

This is just the tip of the ice berg when it comes to this subject.  If you are in the position of acting as a fiduciary for a 401(k) plan it is extremely beneficial to explore this subject more in depth as well as considering delegating or sharing this responsibility with a  “fee only” registered investment advisor going forward.