With the New Year under way, plan sponsors have a lot to consider. Unfortunately, the main objective of a plan sponsor, focusing on retirement outcomes, is taking less and less time as the threat of lawsuits and new regulatory compliance issues crowd-out valuable time and mind-space. It is very important, however, for sponsors to maintain a discipline for retirement plan objectives.
The notion of “best practices” seems to shift from time-to-time, especially in light of the aforementioned considerations. And while regulatory compliance and defending against legal liability is important, the main goal of a defined contribution plan such as a 401(k) plan is providing the best retirement outcome for employees.
So, as a plan sponsor, how do you overcome the legal and regulatory challenges so you can concentrate on outcomes? The answer to that question is surprisingly simple. First, let’s talk about regulation. The top regulatory issue right now is the DOL rule. But regardless of which regulation is in question, little changes your responsibility as a plan sponsor. You are still a fiduciary and bear regulatory responsibility and at the very least shared responsibility.
REVIEWING REGULATORY RESPONSIBILITIES
An annual review of your plan and your plan vendors, including: your advisor, record-keeper, providers and any third party administrators (TPA’s). But most importantly, know what you are responsible for. You can start by visiting or re-visiting the IRS website to learn about your responsibilities. This site also includes links to DOL compliance issues.
MINIMIZING LITIGATION EXPOSURE
Law suits against plan sponsors exploded in 2016, driven by aggressive law firms exploiting (or exposing) weak compliance practices by plan sponsors. These suits covered an expansive list of allegations, including conflicts of interest, fee reasonableness, distribution of plan costs, fiduciary processes, investment results, and much more. In a new twist, several higher education institutions found themselves targets of suits similar to those brought against corporate plan sponsors in recent years. The trend of lawsuits is likely to remain or increase in 2017.
Reviewing vendor contracts, and possibly conducting a request for proposal (RFP), even if you are satisfied with your current vendors is a prudent business practice that should not be ignored. Conducting an RFP will provide you with insight into the marketplace and can possibly provide a defense in the event your company is sued over issues such as fee reasonableness.
Taking the time to review services and fees (through the RFP process) from vendors serves many purposes, will make you more informed, may provide legal cover in the event of litigation…and, will allow you to deliver better outcomes to your participants.
