5 Ways to Keep Plan Sponsors Out of Trouble

5 Ways to Keep Plan Sponsors Out of Trouble

Plan sponsors have loads to think about when it comes to the retirement plans they offer employees. And just because they’re supposed to know the latest rules doesn’t mean they actually heed them.

In a Sunday NAPA 401(k) Summit workshop, Pam O’Rourke of Integrated Retirement Initiatives, Jason C. Roberts of the Pension Resource Institute and Trent V. Sanden at UBS Institutional Consulting offered plan advisors some tips on how to ensure their sponsor clients steer clear of trouble.

Here are five you should know:

1. Investment choices

Plan sponsors undoubtedly have some idea that they have to make good investment choices for plans, but they may not know a good investment choice when they see one. Or they may know they have to provide an appropriate qualified default investment alternative (QDIA), but not realize which criteria make a QDIA appropriate or inappropriate for their particular plan participants. For that matter, does aninvestment policy statement even address QDIAs?

In addition, some of the factors plan sponsors may not be considering are such things as participant risk tolerance, the likelihood of participants taking loans or withdrawals, or whether their participants will even look at a slate of investment choices or simply go with the default, even if it’s not suitable for their particular needs.

According to the presenters, a plan sponsor should make sure that “(w)hen fiduciaries lack investment-related expertise, they are required to hire professional assistance (e.g, investment education, advice and/or management).”

2. Hiring experts

OK, so plan sponsors know they have to hire someone to help them out.  How do you choose an expert?  What should you look for?  What are fair costs for service? Are there benchmarks to know?  Can experts judge impartiality? Advisors may need to point them toward sources of data that can help them make up their minds.

3. Overseeing the plan (a.k.a. Administration, Part 1)

When overseeing the plan itself, some of the sponsors’ responsibilities include making sure that policies are in place covering loans and distributions and making sure that contributions are successfully deposited according to plan rules and participants’ designations.

Advisors must make sure plan sponsors know not only that policies are in effect, but what those policies are and who is responsible for carrying them out. Who decides whether to approve loans or withdrawals? What are the reasons for approval or denial?

4. Reporting (a.k.a. Administration, Part 2)

Fiduciaries not only have to make sure that the plan is administered properly, they also have to make sure that all relevant paperwork is sent to participants and to regulators.

Plan sponsors should know not only which reports, notices, forms and disclosures are required, but also who is responsible for preparing them, when they must be prepared and sent, to whom they must be provided and when (or how often).

And sponsors shouldn’t forget to look to their own recordkeeping. Who is responsible for having copies of all pertinent paperwork in the files?

5. Service providers

Choosing service providers isn’t a set-it-and-forget-it process. While sponsors have to consider a wide range of factors in the initial selection process, one can’t just go about their business once a provider is in place and assume that everything will be fine.

Taking into account participant needs, whether participants are satisfied with the plan and actually use its services (education, automation, website features, etc.) is part of the selection process, but also part of the ongoing review of how a provider is performing. It will not do any good to choose a provider known for a whiz-bang website if a sponsor’s particular group of participants never goes near the Web — nor will it help if the provider runs in-person classes filled with information that put participants to sleep instead of educating them. Maybe the provider has great experience, but not with a particular worker segment and thus fails to understand and accommodate its needs.

Then there are the questions of how the provider is compensated, whether compensation is reasonable considering the provider’s expertise and the size of the plan and whether there are potential or actual conflicts-of-interest that could influence the provider’s judgment.

Plan sponsors must not only stay on top of all these factors and more, but must keep records of the factors they considered when deciding whether to choose, replace or retain a provider.