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Plan Sponsor Annual Checkup

Plan Sponsors have a lot on their plates. Not only must they focus on providing competitive employee benefits, but also protecting themselves against potential litigation. For many, plan responsibilities are among several competing corporate responsibilities, all rightfully demanding full and complete attention. Plan committees must work efficiently and effectively to fulfill all of their plan responsibilities. The following are 12 suggested committee agenda items, which when carried out, can help mitigate fiduciary risks.

  1. Know when plan fees were last benchmarked: Fee compression continues within the defined contribution plan servicing industry, in light of increased competition and the required 408(b)(2) disclosures. Most experts suggest that plan sponsors formally assess the reasonableness of fees every three years. This is a fundamental fiduciary responsibility that should be executed in a comprehensive manner rather than solely relying on industry databases for comparative analysis.
  2. Know the plan’s pricing model: There are three common fee arrangements: bundled, basis point / per participant, or flat dollar fee. Characterizations and implications differ among models. Make it a point to understand these structures and potential effects on fees according to changing plan demographics, market conditions and the like. Know which model currently applies to your plan, and, importantly, if it makes sense for your plan.
  3. Know the plan’s revenue target & fee implications: Dependent on the pricing model and plan specifics, the plan may be generating revenue above or below what is required by the recordkeeper. As applicable, a plan sponsor should verify that any expenses paid from an excess are eligible and/or the method in returning it to participants is appropriate. Likewise, in the case of deficits, plan sponsors should verify how the company and/or participants are being charged.
  4. Identify metrics to define plan success: Work to answer the question, “How do we define plan success?” Based on the answers, set goals and identify metrics for measurement against those goals. Partner with service providers to develop a plan to accomplish defined goals. Report progress against goals at year-end, adjust objectives for the following year as appropriate, identify any new metrics as needed, and establish a successor plan to accomplish set goals.
  5. Get a fiduciary refresher: Plan decisions should be made and documented based on the rules of ERISA. Work with your plan’s experts, such as your consultant and/or in house or outside ERISA counsel, to schedule a fiduciary training session during one of your annual committee meetings to reiterate the importance of and basis for the committee’s work.
  6. Examine plan design & features: Assess the plan’s current features, whether they can positively impact the plan, as well as how they compare to those of other plans. Examples include the Roth feature, which has consistently gained traction, especially given the latest in-plan conversion provision within the most recent fiscal package. Auto features are also worthy of examination and comparison, given their potential impact on participation and savings rates.
  7. Engage your recordkeeper: If not already the case, request that your recordkeeper provide annual updates (at minimum) to the committee regarding plan administration. A plan could be missing out on valuable features or plan-related services simply because of a communications gap between a committee and/or plan sponsor and the plan’s recordkeeper.
  8. Review your decision & documentation process: One way to demonstrate a prudent process is the resulting paper trail of your meetings. Require a designated person in your organization to document the procedures for noting and filing meeting minutes and policies such as investment policy statements and committee charters.
  9. Review policies and update as necessary: The existence of documents such as an investment policy statement (IPS) and committee charter demonstrate a procedurally sound fiduciary process. Review such documents in conjunction with your experts to ensure a level of confidence with established guidelines. Update if any language is outdated due to plan, organizational, or regulatory changes. Work the committee and plan experts to ensure adherence to policies. This is particularly important in the wake of the Tussey vs. Abb case. [1]
  10. Define a target date fund validation process: Target date funds are unique because each investment management firm employs different glide paths and allocates among different asset classes. Examine the target date fund marketplace and determine the key characteristics to confirm the most appropriate target date suite for your plan and participant population. Examine the target date fund marketplace and determine the key characteristics to confirm the most appropriate target date suite for your plan and participant population.
  11. Examine your investment offerings: The industry has come full circle. Investment menus expanded from a very limited number of choices to many choices. Now, the trend is to examine the core investment lineup and consolidate where there is style overlap or minimal diversification benefits. A more streamlined menu, coupled with effective participant education, may help participants become more engaged and even encourage better choices.
  12. Verify plan operational compliance: Review operational procedures against the plan document with the recordkeeper on a periodic basis. Ensure that the administration manual is up-to-date, reflecting procedures in accordance with any new plan design features added since the advent of the recordkeeper relationship. It is a fundamental responsibility of a plan fiduciary to ensure operational compliance with plan documents. A regularly scheduled session with the recordkeeper will accomplish this.

[1] Additional reference to the Tussey vs. ABB case can be found in “408(b)(2) Next Steps: A Call to Fiduciary Duty” on porteval.com.