Ever-changing retirement plan laws and regulations aside, some responsibilities for operating a retirement plan remain constant, and how well the plan sponsor meets them can mean the difference between its failure and success. Thankfully, there are guidelines that can help the sponsor manage its plan effectively. These basic best practices or recommendations are often overlooked, which can lead to deficiencies in plan management—and, as I’ve seen, disarray in the plan itself.
Without further ado, here are five guidelines for achieving effective plan management:
- Properly manage plan documents. Know where the fully executed plan document is kept, along with all related amendments. Refer to them regularly and keep them up to date. When a plan amendment is approved, read it closely and make sure it amends exactly what it’s intended to and nothing else. Read the plan document at least annually, and compare its provisions with how the plan is actually operated.
- Memorize key plan provisions relating to employee and employer contributions, and use the information regularly. Know which employee compensation is subject to contribution calculations. Failing to learn this is costly to plan sponsors because doing it incorrectly may require the sponsor to put funds into the plan. Understand each plan amendment’s impact on the compensation defined. Memorizing only pays off if you consciously retrieve the information: when setting up plan operations; as plan-related decisions are made; and as plan changes are implemented.
- Form a plan committee to meet regularly, at least annually, to discuss plan administrative matters and investment due diligence. Augment this step by hiring an external investment adviser and inviting him or her to the meetings; consult on an ongoing basis. Also, hire an Employee Retirement Income Security Act (ERISA) attorney, and actively consult with him or her, in addition to asking him or her to attend committee meetings. Certain plan sponsors prefer two committees—one for administrative matters and one for investment matters.
- Hire a qualified plan auditor. Your auditor should perform robust audit procedures and recommend due diligence and you should avoid making decisions based solely on cost. The DOL recently engaged a third party to analyze instances of sponsors changing their plan auditors, 2011 to 2015. This analysis noted that plan sponsors are less likely to change auditors when their Certified Public Accountant (CPA) firm has 100 plan audit clients or more. Look for an auditor that has deep experience in retirement plans—an often-complex area.
- Share plan management responsibility between finance and human resources (HR). When these departments approach plan management as a team, the outcome has a better chance of being positive, and the process for annual Form 5500 filings is much more efficient.
Having witnessed varied benefit plan challenges and implementing these and other remedies over the past 30-plus years, I believe you’ll find this to be a practical guide to enhance your retirement plan.
Diane Wasser is the partner-in-charge of the EisnerAmper Pension Services Group. She has more than 30 years of experience providing employee benefit plan audit and consulting services to publicly and privately owned entities across the U.S. She has managed audits for all types of retirement plans, including 401(k)s, 403(b)s, 11-Ks, employee stock ownership plans and defined benefit plans.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the authors do not necessarily reflect the stance of Institutional Shareholder Service (ISS) or its affiliates.
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