Important Employer Considerations Regarding Employee Retirement Plans
Since their introduction in the mid 1980’s, defined contribution plans have moved from the status of supplemental retirement vehicles to being the primary source of retirement savings in the United States. Now more than ever, policymakers believe that workers are in need of the best plans possible to help them reach their retirement goals. As a result, Federal agencies and Congress have adopted tough new rules that place the responsibility of managing retirement plans squarely in the hands of company directors and officers. In today’s world, where legal issues and litigation related to retirement plans are on the rise, plan sponsors must focus on four key areas in order to avoid penalties and legal ramifications resulting from non-compliance and to help employees save and invest sensibly for a comfortable retirement.
Fiduciary Responsibility of Employer:
Employers that offer employee benefit plans are bound by the definition of fiduciary duty set forth in the Employee Retirement Income Security Act of 1974 (ERISA). Fiduciaries of retirement plans have important responsibilities and are required to act solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them. One of a fiduciary’s central responsibilities is to perform his or her duties prudently with the care, skill, prudence and diligence of a person knowledgeable in the field. Additional responsibilities include minimizing the risk of large investment losses by offering a diversified menu of investment options, understanding all fees associated with the plan and disclosing this information to participants, adhering to the terms of the documents governing the plan, ensuring that the documents comply with ERISA, and avoiding conflicts of interest.
Investments serve as the foundation upon which participants build their retirement savings. As a result, it is extremely important that every plan monitors and evaluates its investment options on a regular basis. A written investment policy statement (IPS) can help with this process by providing formal and consistent guidelines for fiduciaries to make investment decisions. In addition, the Department of Labor specifically requests to review the IPS of the plan sponsor when conducting an audit of a retirement plan and it can serve as strong documentation of a plan sponsor’s efforts and processes to consistently manage a plan prudently and in the best interest of participants. In recent years, many plan sponsors are working at providing more simple, streamlined and cost-effective investment menus that offer competitive performance at a fair price.
Effective communication is a vital link between a plan sponsor’s efforts to improve the plan and the participant’s ability to achieve better retirement outcomes. Communication can play a strong role in increasing overall knowledge of the plan and satisfaction with it as well as improve investment decisions, plan participation and deferral rates. Keeping employees informed builds comfort, confidence and trust. Plan sponsors are encouraged to provide initial enrollment information as well as ongoing communication in a simple and informative manner.
Selecting a Service Provider
With employees’ retirement savings at stake, plan sponsors need to select service providers that are credible and reliable. Plan sponsors should look for a plan provider that offers flexibility in investment options available and plan services/products provided, “good value” for the fees charged, and a superior relationship management that offers a human element that’s consultative and proactive in connecting them with services that can help them reach their goals.
In most cases, plan sponsors understand the importance of properly designing and operating retirement plans. However, it is almost impossible for most small and mid-sized employers to understand all of the rules and regulations governing these plans. They simply do not have the time or resources available and often, other issues take precedence. As a member of the AICPA Employee Benefit Plan Audit Quality Control Center, White, Nelson & Co. is committed to maintaining and deepening our expertise in the area of retirement plans so that we can assist our clients in understanding and complying with the complex rules and regulations that exist. In addition, we maintain relationships with competent and qualified Custodians, Third Party Administrators, Financial Advisors and ERISA Attorneys that allow us to refer plan sponsors to various service providers that can offer superior service. We welcome the opportunity to assist you in making sure your plan is in compliance and provides the highest quality retirement benefits to your employees. Email our office at [email protected] or give us a call at 714.978.1300.