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10 Questions to Ask Yourself About Your Retirement Plan - Part 1

Understanding fiduciary responsibilities is important for the security of a retirement plan and compliance with the law. If you answer “no” to any of the following questions, you may not be complying with federal regulations.




  1. Have you identified your plan fiduciaries, and are they clear about the extent of their fiduciary responsibilities?


    • ERISA defines a retirement plan fiduciary as a person or entity that does any of the following with respect to a retirement plan:



        • Exercises discretionary control or authority over the management of the plan or its assets;

        • Provides investment advice or manages the plan assets for a fee;

        • Has discretionary responsibility in the administration of the plan; and

        • Is specifically identified in the written plan documents as a fiduciary.



    • Fiduciary responsibilities include:


      • Acting solely in the interest of plan participants and their beneficiaries, and with the exclusive purpose of providing benefits to them and paying plan expenses;

      • Carrying out their duties prudently;

      • Following the plan documents (unless inconsistent with ERISA);

      • Diversifying plan investments;

      • Paying only reasonable plan expenses;

      • Monitoring investments; and

      • Avoiding transactions that are a conflict of interest.



  2. If participants make their own investment decisions, have you provided sufficient information for them to understand their rights and responsibilities under the plan related to the direction of their investments?


    • Provide plan- and investment-related information, including details of fees and expenses.


      • You must provide this information before participants make their first investment decision in the plan, and annually from then on.

      • Present investment-related information in a format that allows for comparing the plan’s investment options, such as a chart.


    • If the information you provide comes from a service provider that you rely on reasonably and in good faith, you will not be liable for its completeness and accuracy.


  3. Have you considered ways to limit fiduciary liability under the plan? 


    • Document the processes used to carry out fiduciary responsibilities, such as the hiring process for plan service providers and the selection and monitoring of plan investment alternatives.

    • Set plans up in a way that gives participants control over the investments in their accounts—this can help limit the fiduciary liability for participants’ own investment decisions. To do this, participants must be given the opportunity to choose from a broad range of investment alternatives that follow these guidelines set by the Department of Labor (DOL):



        • There must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and among the investment alternatives offered;

        • Sufficient information must be provided to participants to allow them to make informed decisions about the investment options the plan offers; and

        • Participants must be permitted to provide investment instructions at least once per quarter, and possibly more often in the case of volatile investment options;

        • Plans in which employees are automatically enrolled can be set up to limit fiduciary liability for plan losses that are a direct result of participant contributions being automatically invested in certain default investments.

        • There are four alternatives for default investments, as explained in DOL regulations, and in order to use them, an initial notice and an annual notice must be provided to participants.

        • Participants must be given the opportunity to direct their investments to a variety of other plan options, and given information on these other options.




  4. Are you aware of the schedule to deposit participants’ contributions in the plan, and have you made sure it complies with the law? 


    • When employee contributions are made through payroll deductions, employers must deposit the employees’ contributions into the plan “as soon as it is reasonably possible,” according to the Department of Labor.

    • As a general rule, employers must deposit employees’ contributions into the plan by the fifteenth business day of the month following the payday, but should do so sooner if it is possible. However, for plans with fewer than 100 participants, an employer will comply with the law if employees’ contributions are deposited with the plan no later than the seventh business day following withholding by the employer.


  5. If you are hiring third-party service providers, have you looked at a number of service providers and made meaningful comparisons? 


    • Provide each potential provider with complete and identical information about the plan and what services you are looking for.

    • Compare providers based on the same information, such as services offered, experience, current client base and costs.

    • Gather and evaluate information about the firm as a whole, including financial condition, experience with similar group health plans and the qualifications of the professionals who would be handling the plan.

    • Verify that the firm’s licenses, ratings and/or accreditations are current.

    • Ensure that you understand how the company will manage investments and take direction from participants.




These questions continue in the next installment. If you have any questions about this article, or would like to begin talking to a dedicated retirement plan advisor, please get in touch by calling (800) 388-1963 or via e-mail at hbs@hanys.org.

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