Just like their employees, companies sponsoring a defined contribution plan can get overwhelmed by the complexity of retirement plans with dire implications if they get it wrong. Plan sponsors must discharge their duties as a prudent expert or face DOL fines, audits and lawsuits. Most plan sponsors, especially in smaller and mid-size companies, do not have the time or training to be a prudent expert so they delegate their responsibilities to third parties like advisors, record keepers and TPAs. But there are simple yet critical steps in the delegation process which is just the start – they need to remain interested and engaged.
The first step in the delegation process is hiring the right plan advisor. Why? Because that advisor can then help to find other service providers like record keepers and TPAs as well as auditors and attorneys. Using the healthcare analogy, the plan advisor is the doctor, the record keeper is the hospital and the money managers are the pharmaceuticals.
But most plan sponsors get that first, critical step wrong by either hiring an advisor on their Investment Committee knows or by not properly vetting the advisor’s credentials and fit with the company. Over 60% of plans hire an advisor not adequately trained to run a DC plan or without the proper experience. Though advisors help plan sponsors select, benchmark and conduct RFPs for their record keeper, companies are on their own when it comes to their advisors although there are services that can help with a large percentage of bigger plans conducting formal advisor RFPs.
But even if plan sponsors hire the right vendors through a prudent, documented process, they need to stay interested and engaged. Hiring qualified co-fiduciaries and providers, which will only become more important with the new DOL conflict of interest rule, is just the beginning. Plan sponsors have to regularly monitor whether their partners are actually doing the work as well as understand changes either to the company or the retirement industry like new rules and regulations. Granted that companies can rely on their advisor and providers to help keep them informed but staying engaged and interest is key.
The Ideal Plan is making dramatic improvements increasing retirement savings for employees but, like the plan sponsors, they need to stay engaged and interested with the help of their advisor. Because plan sponsors asleep at the switch with the wrong partners can find themselves on the wrong end of a lawsuit or DOL audit.
