Fiduciary governance is a fundamental aspect of managing retirement plans and benefits. Understanding the intricacies of fiduciary duties is crucial for employers, plan sponsors and retirement plan advisors to ensure compliance and safeguard against potential liabilities.
In our recent webinar, Quick hits session: Fiduciary Governance, we equipped participants with essential knowledge and strategies to navigate the complexities of fiduciary responsibilities. To help you build on your learnings, we wrote this supplemental blog. Explore the key elements of fiduciary governance, including best practices, monitoring entities, establishing sound processes and avoiding common compliance pitfalls.
Fiduciary best practices
At its core, fiduciary duty involves acting in the best interest of plan participants and beneficiaries. This means making decisions with care, skill and diligence. Here are some best practices to help you fulfill your fiduciary responsibilities:
Education and training: Ensure that all fiduciaries involved in managing the plan are well educated about their roles and responsibilities. Regular training sessions can help keep everyone up to date with changing regulations and industry standards.
Documentation: Maintain comprehensive records of all fiduciary decisions and actions. Proper documentation serves as evidence of your commitment to prudent management and can protect you in case of legal scrutiny.
Investment oversight: Regularly review and monitor the performance of investment options within the plan. Ensure that they align with the plan's objectives and suit participants' risk tolerance.
Fee transparency: Evaluate and disclose all fees associated with the plan to ensure they are reasonable. Compare them with industry benchmarks to validate their appropriateness on a consistent basis.
Adhering to these best practices can demonstrate your commitment to fiduciary duty and enhance the overall effectiveness of your plan management.
Who's paying attention?
Various entities and regulators closely monitor fiduciary actions to ensure compliance with legal and ethical standards. Understanding who is watching can help you stay vigilant:
Department of Labor (DOL): DOL enforces the Employee Retirement Income Security Act (ERISA), which sets standards for fiduciary conduct. DOL regularly audits plans to ensure compliance and may impose penalties for violations.
Internal Revenue Service (IRS): The IRS oversees tax-related aspects of retirement plans. Compliance with IRS regulations is essential to maintaining the tax-qualified status of the plan.
Securities and Exchange Commission (SEC): For plans involving securities, the SEC monitors compliance with securities laws and regulations, particularly concerning investment disclosures and conflicts of interest.
Plan participants: While not regulators, plan participants have the right to monitor and question fiduciary actions. Ensuring transparency and open communication can help build trust with plan participants.
Primary fiduciary duties and obligations
Retirement plan sponsors, bound by fiduciary responsibility, must diligently act in the best interests of the plan participants. Central to this fiduciary role are the primary fiduciary duties: duty of loyalty, duty of care and duty of good faith.
The SEC and DOL provide oversight and enforcement to ensure these standards are upheld, helping to maintain trust and confidence in corporate governance. Plan sponsors bear the responsibility to fulfill their duties by constantly aligning their actions with the best interests of the participants.
Having a sound process
Implementing a robust fiduciary process is key to minimizing risk and ensuring compliance. Here are steps to establish a sound process:
Develop a governance framework: Create a clear governance structure that outlines roles, responsibilities and decision-making authority. This framework should include committees for investment oversight, compliance and plan administration.
Regular plan reviews: Regularly review the plan's performance, investment options and compliance status. Use these reviews to identify areas for improvement and make informed decisions.
Risk management: Identify potential risks and develop strategies to mitigate them. This may involve diversifying investments, conducting stress tests and implementing contingency plans. Learn the four key topics in our blog, What is Risk Management: 4 Key Topics to Know.
Engage external experts: Consider hiring external consultants or legal advisors to provide an objective assessment of your fiduciary practices. Their expertise can help identify blind spots and suggest improvements. Some retirement plan administrators may even get fiduciary liability insurance for another layer of protection.
By following a structured process, you can minimize liabilities and ensure that your plan operates efficiently and complies with regulations.
Compliance pitfalls and how to protect yourself
Navigating fiduciary governance requires vigilance to avoid common compliance pitfalls. Here are some traps to watch out for and tips on how to protect yourself:
Conflict of interest: Avoid situations where personal interests conflict with fiduciary responsibilities. Disclose any potential conflicts and recuse yourself from decisions when conflicts may arise.
Inadequate documentation: Failing to document fiduciary decisions can lead to legal challenges. Ensure that all actions and rationales are thoroughly documented and readily accessible.
Lack of communication: Poor communication with plan participants can lead to misunderstandings and dissatisfaction. Maintain open channels for communication and provide clear information about plan changes and performance.
Neglecting due diligence: Failing to perform due diligence when selecting or monitoring plan investments can expose fiduciaries to liability. Regularly assess investment options and service providers to ensure they meet the plan's objectives.
By proactively addressing these pitfalls, you can protect yourself and your organization from potential legal and financial consequences.
Fiduciary governance simplified
Navigating fiduciary governance requires a commitment to best practices, understanding who monitors your actions, establishing sound processes and avoiding compliance pitfalls. By doing so, you can ensure that your plan management aligns with legal and ethical standards while safeguarding the interests of plan participants.
If you're ready to take your fiduciary governance to the next level, consider partnering with TruePlan Benefit and Retirement Advisors. Our team can guide you through the complexities of fiduciary governance and help you achieve your goals. Contact us today to learn more!
This content is for informational purposes only. It has been partially generated from an AI language model, which may not always be exhaustive or tailored to individual circumstances. We encourage you to contact one of our experts for more information. We assume no liability arising from any use of this content.