Fiduciary Protection – Governance is Nothing Without Action

Fiduciary Protection

Fiduciary Protection: Governance is Nothing Without Action. The CPA Journal recently published an article titled “Plan Governance Protects CFOs and HR Managers from Fiduciary Liability.” Technically, it isn’t wrong. Yes, retirement plan governance is important, and without it, the plan’s fiduciaries would not have the necessary guideposts to help them make prudent decisions to manage the plan and carry out their activities in line with the law.

BUT, we would take The CPA Journal to task on the title. It may be simply a semantic argument, but in our view, plan governance is one thing. However, it is the actions of the plan’s fiduciaries that make all the difference when it comes to protecting those with day-to-day oversight of the plan. So we would replace “plan governance” in the title with the words “The Actions of Plan Fiduciaries Protect…”

Why? Simply this: just because a plan “has” or “employs” plan governance — it means nothing without appropriate action. As its name implies, governance is the rules and over-arching processes that “govern” the plan. However, governance in and of itself can’t protect CFOs and HR managers from fiduciary liability. The retirement plan committee, which in theory, would include people in these two roles, among others, must follow the governance policies and take the necessary actions to back them up. Otherwise, they’re just words. Put another way, governance doesn’t mean a whole lot if the plan’s fiduciaries don’t “walk the talk.”

We have written previously about how to build and run an effective retirement plan committee, and the actions that committee should carry out, here, here and here. You can also view our video on best practices in retirement plan committee communication, here. Obviously, outstanding communication is vitally important for a group of decision-makers who are shouldering the fiduciary responsibility of a retirement plan and all those involved in its success.

All this said, our intention is not to discredit The CPA Journal article at all. It’s a good piece that makes some very valid and important points about best practices surrounding plan governance — including appointing a retirement plan committee — and it’s well worth a read. In fact, author Sheldon M. Gellar, JD, CPA, who is a managing member of Great Neck, NY-based Stone Hill Fiduciary Management, LLC and a member of The CPA Journal Advisory Board, essentially acknowledges the need for action on the part of plan fiduciaries once plan governance guidelines and best practices are in place. He writes:

“… in-house plan fiduciaries need to consider taking the following actions (emphasis ours):

  • Evaluate the effectiveness of their plan governance process.
  • Prepare for an IRS and DOL audit.
  • Retain a third-party fiduciary to manage plan governance and oversee plan operation.
  • Determine the employer commitment and plan cost structure to meet plan objectives.”

Mr. Geller concludes with this: “Finance executives and HR managers who are parties charged with the governance of their employer’s 401(k) plans need to establish a well-structured plan governance process, which is critical for legal compliance, risk mitigation, and benefit accumulation.”

Fair enough. We would just add that finance execs and HR managers need not only put governance in place, they also need to make sure the plan’s fiduciaries ACT on it. When faced with potential litigation or an audit, it’s not enough to say “oh, we have a plan governance process in place.” The litigators and/or auditors are going to want to know precisely how the plan’s fiduciaries have acted on those policies, and they’re going to want to see proof to back it up. When it comes to fiduciary protection, actions definitely speak louder than words.

Special thanks to Steff Chalk for providing the inspiration for this piece.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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