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Fiduciary Due Diligence for Retirement Plans

BY Amanda McNutt, CPA
10/03/2013 - 1:47pm

Companies that offer a retirement plan to their employees are required to take certain actions and meet specific responsibilities. Those who manage an employee benefit plan and its assets, known as fiduciaries, have to understand some basic standards of conduct to ensure that all plan contributions are being handled in an ethical and trustworthy way.  As a plan fiduciary, there are responsibilities to the plan, its participants and its beneficiaries. 

It is important to know who the fiduciaries and co-fiduciaries for the Company’s retirement plan are and there may be more than those specifically named in the plan documents.  Ignoring fiduciary responsibility may lead to legal consequences, so if you act as the fiduciary for a company’s plan you must have a complete understanding of your role.

Understanding Your Plan

The plan fiduciary must have a comprehensive understanding of the plan and its associated documents to ensure that the plan is being administered as intended and in proper accordance with the plan documents.  A fiduciary must maintain signed copies of all documents relating to the plan either electronically or paper. 

Getting the expertise

As a fiduciary, there are several responsibilities which require certain expertise.  It is not expected that the fiduciary will run the plan single-handedly.   There are third-party service providers which can help you with investment advising, participant education, recordkeeping, government reporting, holding the trust fund assets and other duties.  Make sure that you understand the services to be provided and the fees paid directly or indirectly for all service providers.  Because a fiduciary is ultimately responsible for the plan he or she must monitor all service providers on an ongoing basis.

Benchmarking

Periodically, the fiduciary will need to assess how the plan and its service providers are operating.  Benchmarking is a useful tool and can be used to compare your investments and service providers against others in order to determine if any changes are necessary.

There are many factors to consider when benchmarking, keeping in mind that this is not purely about the fees paid for investments or service providers.  For instance, when reviewing investments, consider how the investment fits into the plan’s investment policy and provide a variety of investments.  For service providers, you should compare both a description of services and expenses paid. 

Doucment Your Work

It is import to document all decisions and the decision making process to justify the reasoning. The fiduciary should also make sure minutes are being kept anytime there is a meeting to discuss the plan with a plan committee, company management or outside service providers.

Every year there are legal cases against plan sponsors and the fiduciaries of retirement plans.  Make sure that you understand your responsibilities to the plan, its participants and its beneficiaries so you can take the necessary steps to safe guard the plan.  Please contact us if you would like additional information or would like to discuss this further.