Fulfilling Your Fiduciary Responsibility for Retirement Plans
By Lauren Leidner Bloom
Lauren Leidner Bloom
Many people working for nonprofits have a fiduciary responsibility in connection with their organizations retirement plan, but may not be aware of it, which could be problematic for both the organization and plan participants.
Retirement plans are under increasing scrutiny from the U.S. Department of Labor (DOL) to ensure they are compliant with the its rules on managing a plan and its assets.
Every retirement plan has at least one fiduciary that can be identified either by name or by office. This typically includes the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, and all members of the plans administrative committee. It is important that you identify who is a fiduciary within your organization so that person or persons can ensure their duties are being fulfilled.
First things first what is a retirement plan fiduciary? Simply stated, it is someone who has important responsibilities and is subject to a code of conduct set by the department of labor. For nonprofits, this can be a challenge. Historically, nonprofit retirement plans were individual agreements that just involved the employee, not the employer. This has all changed in the past few years, yet many organizations have yet to formulate a plan to absorb these new responsibilities in their work flow processes.
Risks of Not Having a Proper Plan
Failing to have a proper plan, or having a poorly conceived plan can result in a fine should the DOL audit your plan and discover you are not meeting your fiduciary responsibilities. Additionally, if you fail to meet your responsibilities, your employees may not be properly prepared for their retirement either because they are losing money due to excessive fees, lack of education and advice regarding the plan or too many or too few available fund options.
Providing a retirement plan for your employees is a great benefit. You want to make sure you are doing it properly. So, how does one go about fulfilling their fiduciary responsibilities? Here are a few ways to get started:
- Make sure you have a written plan document and you are running the plan according to the document. Sounds easy enough, however many plans either dont have a document or they have one they are not following. For example, your document may state the definition of compensation for plan purposes as being salary only and you could be allowing employees to defer part of their salary and bonus. The disconnect between the document and practice would mean you are not following the document.
- Ensure the fees you are paying are reasonable. Perhaps your plan was a start-up plan 20 years ago. Your vendor charged their fee as a percentage of assets. As assets grew over time, the fee that may have been reasonable 20 years ago may now be considered unreasonably large. It is important to assess all fees every few years to determine if they are reasonable.
- Develop an investment policy statement (IPS). The IPS should spell out a way to review the funds, including when to make a change to the fund line up or watch list a fund.
- Review the investment choices using your IPS. You want to make sure you are offering enough choices for all your employees but you do not want to overwhelm them by offering too many in each category.
- Educate your employees. Hopefully you know that you are not allowed to give advice to your employees yourself but...you can and should allow an outside party, whether it is the vendor of your plan or an independent advisor, to come in a speak with your employees about how important it is to save now for retirement, help them set a goal, and put together and action plan for reaching this goal. Remember, for most of your employees, their workplace savings will be providing most of their money at retirement.
Not only will having a properly run plan ensure you are fulfilling your fiduciary responsibilities and can pass an audit, but a well-run plan also will ensure your employees are properly prepared for their retirement.
Lauren Leidner Bloom, Director of Non Profit Retirement Plans at Sapers & Wallack, assists nonprofits with their retirement plans and helps nonprofit employees best utilize their plan. Contact her at firstname.lastname@example.org or 617-225-2600.