Simplifying Plan Administration: A Concise Guide to Meeting Fiduciary and Compliance Responsibilities

April 27, 2010 (PLANSPONSOR (b)lines) – Sponsors of 403(b) plans are now more accountable than ever for a broad range of functions, including plan administration, reporting, and compliance.

With renewed focus on these areas, plans sponsors of all types can benefit from assessing and updating their practices. By conducting a standard fiduciary review to implement key enhancements and maximize cost efficiency, most 403(b) plan sponsors will find that their ultimate goal – a retirement plan that upholds their obligations, advances their organization’s strategic objectives, and helps meet the long-term financial needs of employees – is well within reach.

To conduct a fiduciary and compliance review:

·         Be sure to fully understand the regulations – Pay particular attention to the new regulations governing plan documentation, availability and nondiscrimination, transaction monitoring, and reporting.

·         Establish a plan governance process – Form a fiduciary governance committee and ensure that all individuals designated as fiduciaries within your organization receive proper training regarding their duties and potential liability. Develop written plan governance policies to clearly define all fiduciary roles, protocols and procedures. In addition, you may wish to consider forming an investment committee to monitor and review investment performance, plan expenses, and workforce financial literacy.

·         Review and update plan documentation regularly – Retirement plan providers can help sponsors create, modify, or update their plan documents as needed and offer assistance in complying with the relevant rules. Sponsors should review their plan documents with legal counsel. Also consider developing an investment policy statement, which provides guidelines for plan investment options.

·         Evaluate and update the plan as needed – Evaluate the plan periodically to determine whether its investment options provide employees with sufficient opportunities to build well-diversified, retirement-focused portfolios. Also look at plan design features such as automatic enrollment and savings provisions, catch-up contributions and Qualified Default Investment Alternatives (QDIAs) to determine if these programs should be added or adjusted to enhance the retirement security of your employees.

·         Monitor plan transactions and investments – Establish a process to ensure that contributions, distributions and other participant transactions meet their respective limits and sequencing requirements. If the plan is served by multiple vendors, implement a mechanism to monitor participant transactions such as loans and hardship withdrawals proactively, to minimize risk and keep your plan in compliance. Monitor investment performance quarterly against established benchmarks.

·         Communicate with participants and retirees regularly – A comprehensive communications regimen can help sponsors strengthen ties with the plan’s participating employees, raise their awareness about retirement issues, and help them keep their retirement savings on track. Also ensure that both retirees and participants have the help they need to make informed investment decisions, using a range of resources, including consultations, educational presentations and materials, access to subject matter experts, and comprehensive topical guides.

Conduct an annual plan and investment review – An annual plan and investment review can help assess how well the plan is working and identify opportunities for improvement. Reviews should cover areas such as asset flows, service quality, cost, transaction activity, participant satisfaction, and investment performance.

Plan Design Considerations

In addition, there are a number of adjustments sponsors can make to the structure of 403(b) plans to simplify administration, improve their effectiveness and at the same time, reduce costs. A growing number of plan sponsors are deciding to consolidate their roster of retirement plan vendors to accomplish these goals. Many are selecting a single provider that can offer greater control, flexibility, and cost-efficiency. Even if not ready to consolidate, sponsors should evaluate each provider’s ability to assist with administrative tasks, which can ease the burden on staff and help manage or reduce costs.

Also, consider these plan design features to improve employees’ savings outcomes:

·         Automatic Enrollment and Automatic Deferral Increases

·         Retirement-Focused Investment and Income Options - By offering a menu with a manageable range of investment options, including index funds and actively managed funds, sponsors can provide participating employees with access to an array of quality investment options across the risk-return spectrum, and streamline the selection process. A long-term annuity product not only provides employees with a safe and secure way to accumulate savings, but also gives them the opportunity to convert some portion of their savings into a series of monthly payments that will continue throughout retirement.

·         Objective Advice - Comprehensive, objective advice – from advisers whose compensation is not tied to commission sales – can guide employees on such matters as how much to save, how to allocate savings among investment choices, and how to address their income needs in retirement.

Fulfilling fiduciary and compliance responsibilities needn’t be an expensive proposition. Current plan providers may be able to assist sponsors with many aspects of the process. Through fiduciary review, simplified administration and effective cost management, and key retirement plan enhancements, plan sponsors can address the challenges of an evolving regulatory environment and serve the long-term interests of their participants.

Paul J. Gallagher, Managing Director, Product Development and Management, TIAA-CREF

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.