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Fiduciary Best Practices for the New Year

The role of a retirement plan fiduciary remains unchanged, but with the new year it may be a good opportunity to review and ensure fiduciary processes are in order in such areas as governance, plan investments, and fees.

Although plan fiduciaries may monitor, for example, the investment performance of their plans’ funds on a routine basis, they often overlook the need to periodically review plan governance as a regular part of the fiduciary process. Unfortunately, having outdated documents or operating a plan contrary to document provisions will certainly raise red flags, especially in a DOL audit. Also, not properly documenting fiduciary actions and the outcomes of committee meetings would be problematic. Including annual reviews of ongoing governance policies will help mitigate gaps in the fiduciary process and even potential fiduciary breaches.

Consider this governance checklist:

  • Do you have an up-to-date plan document and summary plan description?
  • Have you reviewed your committee structure?
  • Do you have a committee charter or by-laws?
  • Does the charter adequately delegate authority and provide for indemnification of the committee members (with the exception of gross negligence)?
  • Who are the plan fiduciaries and what are the roles of each committee member?
  • Do you have fiduciary liability insurance?
  • When was the last time the investment policy was reviewed and updated?
  • Do you have all committee meeting minutes readily available?
  • Are you aware of current regulatory changes that may impact your plan?

In addition to plan governance, investment monitoring is an essential fiduciary duty. Markets were very volatile in 2018 and it’s critical for fiduciaries to understand how the market environment impacted plan investments. Simply comparing fund performance to an index or peer group may not be the most effective method for reviewing performance. A more thorough fiduciary review would include an understanding of a fund’s investment process and factors that contribute to performance.

Consider these investment review questions:

  • Are funds being reviewed pursuant to investment policy criteria?
  • Are you using appropriate benchmarks and peer groups to measure performance?
  • Does the committee have the necessary expertise internally to properly evaluate investments?
  • When was the last time you reviewed the types of asset classes offered in your plan?
  • Have you thoroughly reviewed your plan’s target date funds?
  • Have you reviewed and validated your default investment option?
  • Are the share classes of the plan’s funds appropriate / are lower cost share classes available?

Finally, fee litigation continues to be a major issue in the defined contribution industry. Even with the warnings provided by the high profile litigation over the past decade, many plans may still be vulnerable. Therefore, understanding and monitoring all fees including recordkeeping fees is critical.

Consider the following:

  • When did you last receive and review your vendor’s plan sponsor fee disclosure?
  • Is the annual fee disclosure being distributed to plan participants, and to new employees?
  • How recently have you benchmarked your plan’s recordkeeping fees?
  • Do you have a carryover ERISA budget or forfeiture balance from 2018?

Finally, plan fiduciaries need to ensure their plan is compliant with a plethora of other requirements including those related to annual coverage and non-discrimination testing, government filings and monitoring limits placed on the benefits provided to employees. In keeping with this, we have included our 2019 Compliance Calendar, which summarizes the key compliance deadlines for this year, as well as employee benefit limits for 2019.