Plan Sponsors are not retirement plan consultants. Normally, it is a task relegated to you as part of your position. But since it is not a core activity to operations, it often falls by the wayside. Here is a quick at-a-glance reference guide that reviews the essentials to help keep you on track.
1. Plan Fiduciaries
The current buzzword. Regulatory changes, new rules, new responsibilities. But with all the outsourcing and shared responsibilities, who is actually a fiduciary, and what does that even mean?
Fiduciaries usually include plan trustees, investment committees, boards of directors, investment advisors, and any outside investment managers.
As a plan sponsor or administrator, your duty to the retirement plan is to retain documentation of all decisions made regarding the plan and more importantly, the process which you used to arrive at those decisions.
You also are the ultimate ‘stopgap’ if you will for all other fiduciaries, after all, the companies employees are your own, and you are liable for any other fiduciaries you selected to help run the plan. You should monitor and benchmark their performance and fees on a regular basis.
2. Investment Policy Statement
The recommended way to document investment selection is to have a written set of guidelines that you used to select the participants investment options. This document is usually a collaborative effort between the investment committee and any outside advisors that help you administer the plan.
After you create the document, it is important to adhere to whatever guidelines were selected, and investments that no longer fit the criteria should be replaced as needed.
3. Automatic Enrollment & Auto Escalation
A relatively new and important development is plan ‘effectiveness’. The buzzword here is “retirement readiness”. This means remembering the ultimate goal of any retirement plan, helping employees save enough to retire comfortably and on time.
Many employees are used to the old pension model which has fallen by the wayside. A good way to ensure they are saving enough on their own is to adopt automatic enrollment where everyone is enrolled in the plan until they “opt out”.
Make sure you set the deferral percentage so that participants get full advantage of any match you are providing. In the same vein, using auto escalation (auto increase) gradually increases deferral rates until a participant opts out. This provides the participants with the ability to increase savings at a steady pace to keep up with inflation and their growing need for savings as they near retirement age.
Stay tuned for the next installment in Plan Best Practices. Remember these are starting points to keep your focus fresh on your plan’s needs, and all decisions should be reviewed and discussed with your internal team and plan consultant.
Until next time, happy saving.
