In a recent Fiduciary News article, Christopher Carosa, CTFA spotlighted several critical questions that 401(k) plan sponsors frequently neglect to ask, even though they have significant fiduciary responsibilities. When left unaddressed, these questions can impact participants’ financial security and expose sponsors to unexpected fiduciary risks.
One fundamental question involves Target Date Funds (TDFs). Ron Surz of Target Date Solutions, who was quoted in the article, emphasized that prudent TDFs should be “broadly diversified and protect near the target date against Sequence of Return Risk.” This protection is especially critical because defaulted participants share one common trait—they lack financial sophistication. For plan fiduciaries, selecting TDFs requires more than simply choosing popular names; it demands careful assessment of prudence and participant protection, Mr. Surz noted.
Another overlooked question has to do with sharing fiduciary responsibility: “Why are we held responsible as administrative fiduciary and investment fiduciary to our plan and not our providers?” asked Jeff Coons of High Probability Advisors in the Fiduciary News article. He pointed out that providers can serve as 402(a) Named Fiduciary (reducing responsibility for plan oversight), 3(16) Administrator (reducing administrative responsibility), and 3(38) Manager (taking on discretionary investment responsibility as a fiduciary)—effectively reducing sponsor responsibilities through direct hiring or by joining a pooled employer plan.
Plan sponsors should also ask whether employees truly understand the plan well enough to use it effectively. Richard Bavetz of Carington Financial noted in the article that many don’t, leading to under-saving or poor investment choices. Regular, accessible education tailored to different learning styles and life stages can help bridge participants’ knowledge gap and improve engagement.
Documentation of fiduciary decisions represents another critical question fiduciaries should be asking. Mr. Bavetz emphasized that “good intentions aren’t enough—if something goes wrong, the documentation is the defense.” Maintaining thorough records of meetings, advice received, and actions taken is essential yet frequently overlooked by plan sponsors.
As companies evolve, plan sponsors should periodically ask whether their plan design still aligns with their current workforce. Reviewing features like eligibility, vesting, and loan provisions can make plans more effective and appreciated by participants.
Advanced technology and AI represent more missed opportunities. Adit Sheth of Microsoft suggested using data analytics to identify participation gaps, generational differences, and default settings that may be hindering outcomes. Personalized, AI-driven communication has the potential to dramatically boost engagement and improve retirement readiness.
Fee benchmarking, a core fiduciary responsibility, often falls by the wayside, too. Kent Fitzpatrick of Asset Strategy emphasized the importance of evaluating whether plan fees are competitive with similar plans—a critical consideration for fiduciary compliance and participant outcomes.
Finally, emerging fiduciary risks associated with AI require proactive scrutiny. Michelle Capezza of Mintz Levin stressed the importance of asking service providers about their AI usage and developing prudent monitoring methods to prevent negative impacts on participants.
By addressing these crucial questions, plan sponsors can enhance their retirement offerings, better protect participants, and shield themselves from unnecessary fiduciary liability. Proactive inquiry isn’t just a compliance exercise—it’s the foundation of responsible retirement plan governance.
