Five Common Fiduciary Mistakes Plan Sponsors Should Avoid. There are several common misconceptions that can get plan sponsors into hot water with regulators if they aren’t fulfilling their fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA), the law that governs retirement plans. Renowned ERISA attorney Carol Buckman (who also writes a monthly column for 401kTV) recently penned an article for Employee Benefits Adviser outlining the top five mistaken assumptions of plan sponsors when it comes to avoiding ERISA audits, and how they can spell big trouble for those who fall victim to them, regardless of plan size:
- My vendor is on top of things, so I have nothing to worry about. Not exactly. As a plan sponsor, you’re a fiduciary. Your vendor probably isn’t, but even if they are, you’re still responsible for prudently selecting and monitoring them. Bottom line: It’s your job as a fiduciary to make sure your retirement plan vendor is compliant.
- Only large plans get audited. False! Plans of any size can be audited. What’s more, audits can be triggered by a variety of things, from employee complaints to how you respond on your Form 5500. Your plan could also be selected at random for an audit, so you can’t be too careful. Bottom line: Always presume your plan can be audited, even if you do everything “by the book.”
- I don’t have to deal with participants who are “squeaky wheels.” No again. It’s critical to address participant complaints, no matter what their nature. Otherwise, malcontented participants can trigger a plan audit, as mentioned above, or worse, a lawsuit, which can be costly and time-consuming, Buckman reminds. Bottom line: Be attentive to participants’ complaints, and helpful when they ask for assistance.
- I can’t get in trouble if I follow the law with the best of intentions. Uh-uh. You know what they say about “good intentions.” Ignorance of the law is no excuse, and the Department of Labor (DOL) and Internal Revenue Service (IRS) expect full compliance, regardless of sponsors’ intentions. Bottom line: Just as there’s no free lunch, the DOL and IRS aren’t going to give you a free pass for not knowing and following fiduciary regulations. Make sure you know your fiduciary responsibilities, and that your actions comply with the law.
- Third-party advisors cost too much. I can manage my plan on my own. Granted, some sponsors choose to oversee their retirement plans on their own — but at their peril if they’re not intimately familiar with the inner workings of the law. Under ERISA, you must follow a “prudent expert” standard. In other words, if you don’t know what you’re doing, you must prudently select an expert vendor to fill that knowledge gap.
Buckman writes: “For maximum protection, you can hire fiduciary administrators and investment managers with the discretion to make plan decisions. Keep in mind, though, that you will still be responsible for prudently hiring and monitoring these people. And having your attorney review procedures, amendments and communications to make sure that increasingly complicated rules are satisfied save money in the long run. Your potential penalties will be much higher than the cost of your attorney’s services.” Bottom line: Choosing not to spend money to hire the experts you need to help you manage your retirement plan typically doesn’t pay off. In fact, it could end up costing you more in the long run.
When it comes to fiduciary responsibility, ignorance is not bliss. In fact, it can be a nightmare. In order to keep their noses clean when it comes to plan audits, sponsors should take heed of these five common misconceptions and make sure they know what to do — and what not to do — to make sure they’re fulfilling their fiduciary responsibilities to the fullest extent of the law.
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