“How to run a DC plan”, that is an all too familiar Google search for many Human Resource professionals. For many people running their company’s defined contribution (DC) plan it’s one of 10+ jobs which most inherited without formal training. So most people start with the basic question of what do I need to do or, what’s the “bottom line”? ERISA attorney Ary Rosenbaum provides a basic and even entertaining synopsis for busy HR and financial professionals in charge of their company’s DC plan.
The basics duties to run an effective DC plan include:
- Fiduciary – Ary points out that the road to hell is often paved with good intentions. You can handle your own money any way you want but handling other people’s money in ERISA plans is fraught with danger. Make sure you get this right.
- Partners – Hiring the right partners whether advisor, record keeper, TPA, auditor or attorney is the key according to Rosenbaum. And then plan sponsors have to constantly monitor their activities. Documentation of both processes is key because, if is not in writing, it didn’t happen.
- Insurance – Fidelity bonds are required to cover theft but liability insurance, which is not required, covers litigation. Even small plans are now the target of many 401k lawsuits and even if you win, the cost to defend can be onerous.
- Fees – They have to be reasonable for the services rendered. Cheapest is not required.
- Needs – Does the plan meet the needs of the employees and the company? How do you know?
- Education and Advice – Face it, most employees need and want help. Is your advisor adequately serving them? Because, if not, when it comes time to retire and they cannot, employee costs rise.
- Pay Attention – Basic common sense and a little bit of time will go a long way
At TPSU programs we counsel plan sponsors to ask questions of their partners until everything about the plan makes perfect sense. If it does not, usually something’s wrong requiring immediate attention, like hiring new partners.
