Questions Every Retirement Plan Trustee Should Ask ThemselvesSubmitted by Ascend Planning & Consulting LLC. on June 9th, 2017
So you are a fiduciary (trustee) of your company’s retirement plan and have never had a complaint from any of your employees. While that is certainly a good thing, don’t think that you have dispensed with all of your responsibilities that easily.
Your responsibility as a retirement plan fiduciary is one that many retirement plan trustees don’t spend much time thinking about. The common thinking is “my employees seem to like our plan, the investments are doing OK and we provide employees with some education about the plan and encourage them to save for retirement”.....what else do I need to do?
If you haven’t benchmarked all facets of your plan, you may wish to review your options again.. Please remember, as a plan trustee, you have been entrusted with the responsibility to both protect the plan assets and the qualification of the plan for the benefit of all plan participants. Are you meeting your responsibilities if the asset management fees charged within the plan are twice as costly as the average fee charged for similar sized plans, probably not! What if the fees are very low and the investment results within each asset class are significantly less than their respective benchmarks? Same likely outcome, you didn’t meet your responsibility as the fiduciary of the plan.
The only way to know with certainty that you are “checking all the boxes’ in meeting your responsibility as a retirement plan (ERISA) fiduciary is to regularly benchmark all facets of your plan….or at least those facets that impact the ultimate results for the plan participants.
So, what should be regularly benchmarked?
Here are some suggestions:
Record Keeping/Third Party Administration Fees. If these fees are paid by the business and have no impact on plan participants, this is generally not an issue for plan participants. One example is when the company pays directly for Third Party Administration (TPA) expenses. If this fee is deemed excessive, while it may not be good business for the company, since it has no impact on the plan participants, there should be no potential liability. However, if the TPA fails to keep the plan in compliance, this could also result in a fiduciary failure regardless of the fees incurred.
Performance of the investment Options. Do they meet or exceed the average of similar asset class returns and how do they compare with the appropriate index. How often should this be reviewed? At least annually. It is a best practice to have an Investment Policy Statement (IPS) for the plan and follow its guidelines when evaluating the plan investment options.
Investment options within the plan. Does the plan have an adequate selection? What is an adequate selection? Generally there should be enough choices so that plan participants can either build their own diversified portfolio or choose an account that handles all of the heavy lifting for them. Examples of the later include Target Retirement Date funds or Target Risk Allocation funds.
Investment Platform fees. In addition to the underlying investment management expenses contained within each specific investment option, there typically is a fee for the investment platform that enables participants to monitor their account, make changes within the account and provide the TPA with the needed information to perform their work. How do the fees incurred by your plan compare to fees charged by other similar investment platforms?
Plan Advisor fees. It is quite common to hire a professional to assist in dispensing the responsibilities that you have as a plan fiduciary. Charges can range widely from firm to firm. Are the fees paid by the plan? If so, they are incurred by the plan participants and therefore need to be reasonable given what the market charges for quality advice.
Should you opt for a “do it yourself” aka, no advisor option to reduce plan fees, you have increased your exposure to the risks of not properly dispensing your fiduciary responsibilities. Please be assured that you do not need to hire a professional to assist you. However, if you do your own legal work, your own accounting work or your own repairs at home, you only have liability to yourself. However, as a plan fiduciary, you have potential liability to all plan participants.
A qualified plan advisor will not only assist you in your fiduciary responsibilities, they should also help you evaluate whether the plan design may be enhanced to provide more value for owners and/or key employees. They should act as the quarterback working to understand your business goals and objectives and work along with your accountant and the TPA to optimize the plan operation. They should also be helpful in benchmarking fees charged by the TPA. While these fees may not be borne by the plan participants, reducing them will minimize expenses incurred by the business.
Often times a qualified plan advisor will also be knowledgeable about Non-Qualified plans. These plans are designed to be discriminatory and should complement your qualified plan by providing added benefits for your key employees and owners.
OK, your fees are good, your plan is optimized, but are you meeting your responsibilities of providing your participants with adequate education about the plan? Once again, the advisor can help guide you to meeting your responsibilities.
Lastly, how do you know if your advisor is properly qualified to assist you with dispensing your fiduciary responsibilities? Here are some general questions to ask.
- How many retirement plans do they provide guidance for? If the answer is a few, they may lack the focus and experience. Conversely, if they assist many plans, it is likely a focus of their practice.
- Have they earned a professional designation that assists in this area of specialty? Examples include the Accredited Investment Fiduciary (AIF®) and Certified Plan Fiduciary Advisor (CPFA).
- Do they use analytical tools to benchmark the investment fees and performance?
- Do they belong to a professional association that provides ongoing education and regulatory updates. Examples here may include the National Association of Plan Advisors (NAPA) and the Society of Financial Services Professionals™ (SFSP).
- Last but not least, request references to reach out to…..ideally to other plans that are similar in size (assets/employees).
Following these guidelines should provide you with the confidence that not only are you meeting your responsibilities as a retirement plan fiduciary, you are providing a great service to all employees.
Mark Swartz JD, CLU®, ChFC®, CFP®, AIF® is a registered representative who offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC and an agent who offers annuity and insurance products through AXA Network, LLC (AXA Network Insurance Agency of California, LLC in CA, AXA Network Insurance Agency of Utah, LLC in UT, AXA Network of Puerto Rico, Inc. in PR).Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Investment advisory products and services offered through AXA Advisors, LLC, an investment advisor registered with the SEC. Annuity and insurance products offered through AXA Network, LLC. AXA Advisors, LLC does not provide tax or legal advice. This discussion is based on a current federal income tax law and interpretations. Your receipt of this article does not necessarily indicate that the sender is able to transact business in your state. CA Insurance License #0778774.