Over the past several weeks I have been working on a broad fiduciary audit of a retirement plan to assist their committee in understanding their responsibilities as fiduciaries and help them implement more processes. It’s always fascinating to see how plans from different industries and even regions grow, change, and evolve as time passes.
Having conducted several of these process reviews over the years, Multnomah Group has learned two things.
- Clients who care enough to have their processes reviewed, generally have good processes.
- Every process can be tweaked to improve effectiveness.
Clearly, the work associated with having your retirement plan management process reviewed is significant. As a result, most sponsors will not have the opportunity to engage an external firm for review and audit. Knowing that, we thought it would be useful to layout the five things we identify most consistently when conducting fiduciary reviews of retirement plans.
- Committee’s confuse fiduciary decisions and settlor decisions. Evaluating whether your plan needs or doesn’t need loans is a great idea, but the decision to change loan provisions should be made by the sponsor, not the retirement plan committee.
- The retirement plan charter articulates responsibilities of the committee that are not being executed consistently. Having a charter that defines roles and responsibilities is a great fiduciary practice, so long as the committee charged with executing the charter follows through.
- Volunteering for the holiday party planning committee is OK, volunteering for the retirement plan committee is not OK. Great committees have well thought out processes for developing, training, and retaining retirement plan committee members. Whether by position or appointment, the construct of retirement plan committees should be well thought out.
- Not understanding the scope of services provided and cost of services rendered by vendors. Your vendors, while critically important to the health of the plan, are not members of the Committee. Good committees are aware of the capabilities and limitations of their service provider partners and they work to gain the maximum value from those relationships.
- Understanding the scope of plan expenses and how they are allocated. Despite the attention paid to this topic by the Department of Labor, litigators, the media, and participants, many plan sponsors still lack a foundational understanding of plan expenses.
For most plan sponsors a self-evaluation of these topics will go a long way toward helping reveal the areas in your plan that may need improvement.
For a broader review of the fiduciary responsibilities under the Employee Retirement Income Security Act, please click here for our Fiduciary Review Guide.