Many Plans Need Refining. Others Need to Avoid Conflicts with Department of Labor Rules.
By PAUL TAGHIBAGI | Special to the Palisadian-Post
At times, running your business takes every ounce of energy you have. Even if you have a human resources officer at your company, creating and overseeing a workplace retirement plan takes significant effort, since these plans demand ongoing attention.
As a plan sponsor, you assume a fiduciary role. You accept a legal responsibility to act with the best financial interests of your employee participants and their beneficiaries.
You are obligated to create an investment policy statement (IPS) for the plan, educate your employees about how the plan works and choose the investments involved. This is just the beginning.
You must demonstrate the value of the plan. Retirement plans offer a great opportunity to save, invest and build wealth for the future. It is important to communicate to your employees, in a user-friendly way, the benefits of the plan.
One way to accomplish this is through educational meetings or seminars that encourage employee participation. If this does not happen, your employees may view the plan as just an option instead of a necessity as they save for retirement.
You must monitor and benchmark investment performance and investment fees. Some plans leave their investment selections unchanged for decades. If the menu of choices lacks diversity, if the investment vehicles underperform the S&P 500 year after year and have high fees, how can this be in the best interest of the plan participants?
You must provide enrollment paperwork and plan notices in a timely way. Often, this duty falls to a person that has many other job tasks, so these matters get less attention. The plan can easily fall out of compliance with Department of Labor rules if these priorities are neglected.
You must know the difference between 3(21) and 3(38) investment fiduciary services. The numbers refer to sections of ERISA—the Employment Retirement Income Security Act. Most investment advisors are 3(21)—they advise the employer about investment selection, but the employer makes the final call. A 3(38) investment advisor has carte blanche to choose and adjust the plan’s investments.
To avoid conflicts with the Department of Labor, you should understand and respect these requirements and responsibilities. Beyond the basics, you should see that your company’s retirement plan is living up to its potential.
An attractive retirement plan could help you hire and hang onto the high-quality employees. You need to be aware of your plan’s mechanics, fees and performance since you could face litigation, fines and penalties if your plan fails to meet Department of Labor and Internal Revenue Service requirements.
Paul Taghibagi may be reached at 310.712.2323, firstname.lastname@example.org or at seia.com/bio/paul-taghibagi.
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