Many plan administrators and committees have an independent fiduciary advisor with whom they work. One of our core beliefs is that better plan governance leads to better results for plan participants. We applaud those that work with independent fiduciary advisors as we also believe that they are the most likely candidates to create review processes that conform to best practices and deliver better plan results.
We have come up with a list of practices that lead to a strong plan review process with better plan results. Please note that these opinions are our own and do not necessarily reflect those of LPL Financial or Global Retirement Partners.
Better plan performance is achieved by setting plan goals and managing them. A strong advisor will draw out of the committee those things that they believe the company should be able to accomplish by sponsoring its 401(k) plan. To support these goals, this would include providing to the committee:
- The advisor can share the latest plan design trends such as the increasing popularity – with plan sponsoring companies and the regulators – of automatic features like automatic enrollment, automatic escalation and a match that is aligned with the principles of behavioral economics.
- The appropriateness of the plan’s investment portfolio with a specific focus on the portfolio options (target date funds, managed portfolios, asset allocation funds, etc.) and the designation of the Qualified Default Investment Alternative.
- Best Practices on the promotion of the 401(k) plan as an important employee benefit. The typical promotion of a retirement plan over the past few decades has been educating the participants on the benefits of saving for retirement, the benefits of investing and why a 401(k) plan is a beneficial vehicle to accomplishing each of these. The recent evolution of this communication has moved into broad-based financial education that transcends only retirement and includes the financial topics that are most relevant in employees’ lives. These are now delivered in multiple formats and venues and can be customized to your company’s demographics and geographic dispersion.
In addition to better plan performance, a strong process will also improve fiduciary compliance.
The following are areas in which a strong advisor can help their clients develop or maintain good practices:
- Fiduciary Governance: The proper establishment of formal committees, their roles and the ongoing monitoring and completion of documentation of the committee. This would include meeting minutes when the committee convenes as well as documenting the changing of roles within the committee as it evolves.
- Investment Oversight: The establishment, review and updating of the Investment Policy. Maintaining the history of fund changes and mapping. The proper review of funds in the plan’s investment portfolio to ensure participants have adequate choice. Documentation of the investment review and decision-making process. Compliance with the plan default investment rules in the Investment Policy Statement.
- Service Provider Review & Fee Analysis: Within a reasonable periodic timeframe review provider fees and services for reasonableness. Review investment management fees for reasonableness. Review the advisor’s compensation and confirm their fiduciary status in writing.
- Compliance: Acknowledge the plan’s intent to comply with ERISA 404(c) regulations as well as fee disclosure rules under 408(b)2.
- Fiduciary Record Management & Documentation: Establish a process of record management that includes the distribution of required materials to participants including the Summary Annual Report. Also establishing a proper archiving process for fiduciary documents including the requisite plan and trust documents, due diligence reports, meeting minutes and retention of records related to the Form 5500.
- Distribution of participant disclosures and communications: Establishing an annual participant communication plan including working with service providers to set a list of all of the communications that must be distributed and the responsible party for each. These procedures should include steps for auditing participant mailing addresses and maintaining proper record of the mailings.
Working with an independent fiduciary advisor to establish and maintain strong processes in these key areas will help assure a higher probability of better results for your plan and employees.