Four Tips for 401(k) Fiduciaries

Business owners who provide retirement plans for their employees are responsible for adhering to ERISA (The Employee Retirement Income Security Act of 1974) guidelines.  As popularity of pension plans has shifted from defined benefit plans to defined contribution plans, employers find themselves responsible to meet the minimum standards set forth by the act.  The act does not dictate who must establish such plans, but it does delineate minimum requirements for those employers who do.   The Department of Labor sets the standards for compliance and record keeping.  Anyone who performs functions which relate to the administration or management of a retirement plan may be classified as a fiduciary if they exert discretion or control over the plan.  Here are four quick tips for retirement plan fiduciaries:

1.  Have a written plan document (Summary Plan Document or SPD), trustee services to custody assets, record keeping to monitor the flow of funds, and general plan information to provide to participants.  If plan participants direct their own investments, be sure to provide them with sufficient information to make those decisions.

2.  Identify fiduciaries and monitor responsibilities to ensure they are following the “prudent man” rule and acting in the best interest of the plan participants, following plan documents, diversifying plan investments, and paying only reasonable expenses.  The new 2012 Fee Disclosure rules require additional transparency.

3.  Be thorough in selecting service providers (Investment Advisors and Third Party Administrators or TPA’s).  Due diligence is especially important if joining a Multiple Employer Plan, to ensure that the plan is solvent (check the DOL website for additional guidelines) and meets any plan structural requirements unique to your company.

4.  Establish a monitoring system and, at a minimum, an annual comprehensive review of the plan structure, service providers, record keeping and participant education programs.  Annual plan testing and filing requirments may vary, so check with your TPA.  Be sure to check your plan versus any recent regulatory updates to ensure compliance.

401(k)’s and other business retirement plans offer a great vehicle for employers to help employees supplement their retirement savings.  With this benefit comes added responsibility.  By implementing a systematic process to hire the right partners, build a structurally compliant plan, select a list of quality diversified investment choices and provide employee education, business owners can better position themselves to meet their fiduciary obligations.


© 2012 Pawleys Investment Advisors, LLC.  All rights reserved.

Please Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s