The comment by the California-based ERISA attorney
reminds plan sponsors that no matter how strictly they
may try to adhere to their fiduciary responsibilities,
the door is still wide open for a suit when large amounts
of money are lost and people don’t expect it. The test is
whether plan sponsors can withstand the high level of
scrutiny brought with a suit – and one of the best
protections offered by panelists at the event was to
scrupulously document decisions and processes related to
Panelists offered some ways in which employers might mitigate those risks:
- Document all plan decisions – a process that itself demonstrates prudence.
- Document and exhaust attempts at educating plan participants and enrollment strategies used. Panelist David Kulchar, PRP, Executive Vice President, Director of Retirement Plan Services at Oswald Financial said his firm used “investment report cards” as a way to reach participants that might otherwise find it difficult to understand how they were doing on retirement savings. He cited a situation when most of the participants in a plan received “F’s” – and thereafter the participation rate jumped from 82 to 98% in just a month and a half.
- Adopt an Investment Policy Statement (IPS). The IPS statement is a document for qualified retirement plans that details the procedure fiduciaries will use for investment selection and evaluation. While plan sponsors are not required to have an IPS (they are, however, expected to conduct their review of the plan’s investments as though they did), it is widely known to be the first document the Department of Labor asks for in an audit (see also The Best Policy ).
- Monitor fees. Panelist Sharon Bastide, Marketing Manager ADP, said that about 20% of plan sponsors did not know what their fees were, a number consistent with prior PLANSPONSOR surveys (see The Next Level ).
- Thoroughly evaluate providers and document that research. Reish offered four questions plan sponsors should ask when trying to find a provider: (1) What should we expect from you? (2) What extra value do you add? (3) How can I monitor your performance? and (4) What data should I expect from you so that I can monitor your performance, and how often will I get it?
Reish also offered his own list of how to manage fiduciary responsibility, all of which he said should be well documented:
- Build a selection process to select investment options
- Build an education program for employees
- Build a process for monitoring investment and plan administration performance
One attendee raised the question of whether it was
prudent as a fiduciary to not require the return of the
forms when an employee does not want participate in a
401(k) plan. She also wondered if she should be keeping
Kulchar said that getting that extra signature just to have documentation would be a smart idea. Bastide said that paper document "is not always practical as we work toward a paperless file environment," but all attempts at getting employees to participate should be kept, even if the employee opts not to participate.
Reish said simply that "lawyers like proof -- there is truth and there is proof."
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