Many plan sponsors get into trouble in their role as retirement plan fiduciaries because they make common mistakes that can get them in hot water, according to Ary Rosenbaum, an attorney in Garden City, New York, who specializes in ERISA issues.
Many plan sponsors don’t hire financial advisors because they believe they can do everything themselves but, according to Rosenbaum, the role of a retirement plan financial advisor is not just picking investments. It is drafting investment policy statements and providing financial education to employees.
“When it comes to most retirement plans (especially participant-directed 401(k) plans), participants are actually paying the plan expenses. The problem? A plan sponsor has fiduciary duty to pay reasonable expenses, especially when the participant is footing the bill,” he said in his most recent article, “Errors that Retirement Plan Sponsors Should Avoid but do Anyway.”
The other common mistake plan sponsors make is not reviewing plan providers for cost and competency, said Rosenbaum, but they have a fiduciary duty to the plan so they need to make sure the fees they are paying are reasonable.
“Plan sponsors usually have no idea if their plan providers are doing their job correctly, until the errors are discovered later down the line. The line usually happens when the plan sponsors changed the provider and the new provider tells the plan sponsor of a discovered surprise,” Rosenbaum said. Plan sponsors should have an independent consultant or an ERISA attorney review their plan to make sure fees are reasonable.
Plan sponsors also need to review their plans on an annual basis to make sure they are in compliance with the IRS and ERISA rules. They also should make sure the plan still meets the company’s needs.
Another mistake is having too much loyalty to a plan’s current providers. All plans should compare the services of their current plan to some competitors to make sure they are getting the most value for their participants’ money. Plan sponsors also don’t admit their limitations, particularly when it comes to managing their fiduciary liability. Rosenbaum recommends purchasing fiduciary liability insurance to protect against legal claims by plan participants. They also may want to consider hiring plan providers that will take on more of the risk and liability, namely those willing to serve in a fiduciary capacity.