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Six Smart Ways To Limit Sponsor Liability

Being a plan sponsor comes with plenty of responsibility, but there are several ways you can protect yourself driving many to attend our TPSU programs. Simple tasks like keeping good, organized records and communicating early and often with plan participants  — things you should ideally be doing anyway — go a long way toward potentially limiting your liability. And while we stress improving outcomes through the Ideal Plan at TPSU, compliance and operational issues must be addressed first.

Here are a few ideas from a recent blog post written by ERISA/retirement plan attorney, Ary Rosenbaum of the Rosenbaum Law Firm P.C., which helps plan sponsors reduce their plan cost, facilitate administration, and limit their fiduciary liability which the editors at 401kTV thought would be helpful:

  1. Hire a reputable third party administrator (TPA): Rosenbaum’s top tip to limit liability? Hire a TPA. Not just any old TPA — one that comes highly recommended. Retirement plans need experts who can handle record keeping and compliance testing, and a good TPA will help keep your plan compliant under the law and ensure participant records remain accurate and up to date.
  2. Partner with an experienced retirement plan advisor: A good retirement plan advisor’s role is twofold: limit a plan sponsor’s liability by helping to define a solid fiduciary process (i.e., create an Investment Policy Statement (IPS)), and educate participants to help them make informed investment decisions. Educated participants tend to be happier, meaning less likelihood of potential litigation over misunderstandings about fees and other investment-related issues. In short, hiring an experienced retirement plan advisor who understands fiduciary process is in the best interests of plan sponsors and (See 401kTV Advisor Directory which includes advisors with their C(k)P designation which requires significant experience and training.)
  3. Benchmark your plan fees: Are your plan and investment fees reasonable or astronomical? Are you still getting the best bang for your buck? The best way to find out is by benchmarking your fees against similar plans, or checking competing plan providers’ prices. Plan costs are one of the primary reasons for many retirement plan lawsuits today. Benchmarking is a viable way to help avoid potential litigation.
  4. Purchase fiduciary liability insurance: Lawsuits happen. The cost of fiduciary insurance is much less than paying for and settling potential litigation, plus it protects you as a fiduciary. Note, fiduciary liability insurance is not the same as an ERISA bond, which is optional and only protects against theft of plan assets. (At one of our TPSU programs held at USC, a plan sponsors explains the importance of fiduciary insurance to her.)
  5. Communicate effectively with plan participants: Research shows good communication about plan benefits can help boost participation and savings rates. Making it fun for employees to be involved — like offering a raffle for meeting attendance and enrolling in the plan on the spot, for example — can help generate excitement and awareness. And again, better-educated participants are less likely to be disgruntled or misunderstand the plan’s offerings, which means a potentially lower likelihood of litigation. (Starting to notice a recurring theme?)
  6. Keep organized plan records: Staying on top of transactional records, notes and other relevant plan documents goes a long way toward keeping plan sponsors aboveboard in a fiduciary sense. In other words, keeping your plan records current and orderly is an easy, cost-effective way to limit your liability.

Doing these six tasks consistently can help plan sponsors steer clear of fiduciary trouble and gain peace of mind. In today’s highly sensitive legal and regulatory environment, that’s something we can all use more of.

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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