Board Members & Fiduciary Responsibility

Are You at Risk?

Today, the scrutiny of retirement plans has never been higher. Harbor Retirement has been able to observe both positive and negative plan management. Some positive management practices of plan sponsors includes: implementing and following appropriate fiduciary processes; minimizing staff involvement with plan administration and communications; keeping administrative expenses ‘reasonable’. These good practices have translated into the following benefits for plan participants: simple enrollment; institutionally priced investments choices; easy access to ask questions. Some negative situations include: providers more concerned about their revenues and proprietary investments than customer satisfaction; ‘paid for’ but unused services; increased expenses based upon asset growth without adding or improving services

As members of the Board of Directors, you may be considered retirement plan fiduciaries and as such have very specific oversight responsibilities. Most important, to the extent that the Board of Directors of an organization fails to perform their fiduciary duties, members may be subject to personal financial liability for plan losses.

Roles and Responsibilities of Plan Fiduciaries

The roles and responsibilities of plan fiduciaries primarily involve instituting, documenting and following certain prescribed processes. Harbor Retirement Planning not only functions as a conduit of information between the plan sponsor and the vendors who provide services or investment management to the plan, but we can help plan sponsors establish the appropriate fiduciary committees and provide regular guidance on plan governance, investment policies, fiduciary processes, investment choice monitoring and participant communications.

Key Questions

Below are some questions for the Board of Directors to evaluate whether the appropriate fiduciary processes are in place for your retirement plans:

1. What are all the direct (paid by plan sponsor or participants) and indirect fees (deducted from plan assets)?
2. What are the contingency fees - changing plan investments, moving monies from existing fixed accounts, termination of service?
3. Has a “reasonableness” analysis (benchmarking by plan size and industry) been undertaken to determine if the plan is getting good value for the services it is paying? Which services for which you are being charged are NOT used -- plan sponsor, participant?
4. What are Plan Sponsor / Participant unmet needs that should be addressed? What are participant qualitative responses to the services provided (like/value, use - frequency)
5. When was the last time an RFP was done for plan administration, investment, accounting, recordkeeping, communications and legal counsel (bundled, unbundled)?
6. When was the plan document last updated and restated? Has it received a recent determination letter from the IRS that it is tax-qualified and in compliance with all of the applicable rules and requirements?
7. Has an investment committee been established to oversee the plans’ investments? If so, are the minutes recorded, decisions documented?
8. Is there an investment policy statement in place? If so, how are investments monitored (watch list) and what is the process to freeze or remove underperforming investments?
9. Who is rendering investment advice to the participants? Is this entity a fiduciary? Has this entity acknowledged its fiduciary status in writing? What information is given to the participants - has it been reviewed and approved by the plan sponsor?
10. Is there a participant communication strategy in place with stated objectives? If so, what kind of activity reports are provided - do they show that plan goals are being met?
11. Are the plan and all fiduciaries appropriately bonded? Do the fiduciaries also have liability insurance? Does the plan sponsor indemnify its fiduciary-employees and Board members?
12. What fiduciary protections are needed? Is the plan intended to comply with ERISA 404(c)? Who is distributing prospectuses to participants?
13. What are the internal costs for this plan - staff, payroll interface? How are costs impacted by a lack of service or provider requirements? What ways have been explored to facilitate or reduce these costs or time wasters.

The responsibilities of retirement plan fiduciaries are important to ensure your plan is in compliance with ERISA guidelines and that it stays that way. These responsibilities cannot be taken lightly, however they can be time consuming activities. ERISA encourages plan sponsors and other fiduciaries to hire “prudent experts” to help implement and maintain a documented process designed to attain the greatest value for the plan while providing guidance to plan participants.

Harbor Retirement can review your current situation and act as a guide through the fiduciary issues of retirement plan and vendor management. Our in-depth knowledge of the industry will help enable you to understand how trends and current developments may impact your retirement program and identify strategies that are unbiased, balanced, and address your specific needs.