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Retirement plan sponsors face a wide range of fiduciary responsibilities when it comes to managing the plan and ensuring compliance. Failure to fulfill these responsibilities can lead to fines and even plan disqualification.
Therefore, it’s critical to devise a prudent process for managing your retirement plan and ensuring that it remains in compliance. This process should include creating a plan governance policy document and appointing a chief governance officer.
Among the most important responsibilities of retirement plan sponsors are making sure that the plan meets certain rules, including the following:
1.
The exclusive benefit rule —Sponsors must operate the plan for the exclusive benefit of plan participants and beneficiaries. Sponsors must also ensure that plan fees are reasonable.
2. The prudent expert rule — The sponsor’s actions when it comes to operating the plan are held to the standards of an experienced professional or expert.
3. The plan document rule
—Sponsors must follow the plan document unless the terms of the document contradict ERISA rules.
4. Investment diversification rule — Sponsors must offer a wide range of investment options that enable participants to meet their investment needs and diversify their investments accordingly.
Management of plan investments has historically created the most potential liability for sponsors, who are held to a “reasonableness” standard with regard to investment diversification. Establishing and adhering to a process for managing plan investments and ensuring diversification by creating an investment policy statement is the cornerstone of risk mitigation.
There’s a long list of specific sponsor responsibilities related to retirement plan governance. These include:
• Selecting and monitoring plan service providers.
• Operating the plan according to laws, regulations and the governing documents.
• Ensuring fulfillment of reporting and disclosure requirements.
• Overseeing plan investments.
• Keeping plan documents updated to reflect legislative changes.
• Avoiding and/or mitigating conflicts of interest in the plan.
• Making sure the plan governance team is effective and has appropriate educational opportunities.
Sponsors must also create, maintain and document a plan governance process. This is best accomplished by drafting a plan governance policy document. This document will delegate authority and assign duties, rights and obligations to responsible parties, as well as determine how frequently these parties will meet.
In addition, the plan governance policy document should define how actions with respect to the plan are approved, identify recurring agenda items, specify how new agenda items are to be introduced, and describe the process for taking and archiving meeting minutes and notes.
One of the best ways to ensure that you’re meeting all of your responsibilities and obligations as a plan sponsor is to appoint a chief governance officer for the plan. This individual should possess a deep understanding of the retirement plan industry, along with its products and services.
The chief governance officer should also have intimate knowledge of your plan’s specific details (including its service providers) and a broad understanding of the retirement industry’s challenges and opportunities. In addition, the chief governance officer should possess skillsets that are well-suited to offering support in the areas of plan coordination and decision-making.
The role of chief governance officer does not have to be taken on internally at the plan sponsor. In fact, it is often assumed by a plan advisor as part of the advisor’s overall plan management responsibilities.
Consider the following five-step process for managing your retirement plan and remaining in compliance:
1. Draft a retirement plan governance policy document and create a calendar for meetings of responsible parties during the year.
2. Appoint a chief governance officer and incorporate this individual into the plan.
3. Compare plan documentation and make adjustments or modifications where necessary. This includes making corrective actions.
4. Review conflict of interest rules while identifying possible conflicts and mitigation strategies.
5. Incorporate a plan benchmarking system that goes beyond just plan investments.
We can answer any questions you have about your retirement plan fiduciary responsibilities and help you remain in compliance. Give us a call at (803) 791-1111 or send us an email if you’d like to talk about your plan in more detail.
Information is provided by William Amick & Blake Amick and written by Don Sadler,
a non-affiliate of Cetera Advisor Networks LLC.
This post is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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Investment Advisory Representatives offer advisory products and services through Longleaf Advisory Services, LLC, a Registered Investment Advisor.
171 Lott Court
West Columbia, SC 29169
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Investment Advisory Representatives offer advisory products and services through Longleaf Advisory Services, LLC, a Registered Investment Advisor.