Business owners who sponsor 401(k) plans can expect to see increased scrutiny over their fiduciary responsibility in the coming months and years. Congress has been working on new industry requirements for 401(k) plan vendors, and the Department of Labor has ramped up its enforcement of existing fiduciary duties. It is no longer acceptable in the eyes of the Department of Labor to just sponsor a 401(k) plan without a complete understanding of your fiduciary responsibility and consistently acting on these responsibilities.
This means that you must understand what services your plan is getting and what your participants are paying for these services. If you are paying for an annual employee education meeting but have not been receiving this service or enforcing this service, this could be deemed an excessive fee, and you and the business could be liable. If you are paying above-average industry costs based on your plan characteristics, but not getting above-average industry service, you could be liable for the excess cost. Plan fiduciaries, such as, owners, boards of directors or plan trustees, etc., have always been held to the highest level of duty, care, and prudence for plan assets; however, it has not always been effectively communicated what that means. As a plan fiduciary, you should make sure your plan has a process in place for reviewing your vendors, plan costs and investment options. These processes should be documented, monitored and followed.
Here are some basic questions a plan fiduciary should be able to answer:
- Who are the fiduciaries on your plan?
- Who is responsible for selecting the investment options?
- What is the process used to select the investment options?
- What is the process for monitoring these options?
- Does your plan have an Investment Policy Statement (IPS) that defines the investment process?
- Does your plan have a Qualified Default Investment Alternative (QDIA)?
- Does the QDIA meet ERISA guidelines?
- Do you send out an annual QDIA notice?
- Do you provide participants with an annual safe harbor notice?
- What documentation has been provided to the plan participates to help them make educated savings and investing decisions?
- Do you submit contributions in a timely manner?
- Do you know what ERISA and legal precedence has determined as timely?
- Do you know how much you are paying each vendor?
- Is this cost reasonable based on the services being provided?
- Are you reviewing and documenting the plan’s costs annually?
- When is the last time you shopped your plan to other vendors to benchmark services and fees?
Having answers to these questions, making sure your answers are acceptable answers, and documenting your process in order to prove your answers may keep you from the defendant’s table or from having to pay fines to the Department of Labor if your plan is ever audited. By spending some time to understand your plan, you can eliminate or limit a lot of the potential liability.
With all the new regulatory changes that are expected to take place over the coming months and years, we have decided to expand our range of services to help plan fiduciaries address these and many other important questions, document their processes, and monitor their investments and plan cost. We will now offer business owners a range of services starting with a one-time plan review and benchmarking to a comprehensive 401(k) management program. If you would like to talk to one of our experts, call us at 770-429-9166 or e-mail at experts@henssler.com
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