Retirement plans play a vital role in securing the financial futures of millions of Americans....
Navigating fiduciary responsibilities: A guide for effective retirement plan management
In the realm of retirement plan management, “fiduciary” is a commonly uttered word, often without a proper understanding of how it actually applies to retirement plans. In this piece, we’ll explore the “what” and the “why” around the responsibilities of those responsible for running retirement plans and what it truly means to be a fiduciary.
The Employee Retirement Income Security Act (ERISA) serves as the guiding compass for fiduciary responsibilities. It sets the standards for plan management and participant protection, outlining the fiduciary role, requirements, and potential liabilities. Acting as a fiduciary to a retirement plan involves putting participants’ interests first and making decisions that are truly best for them. Proper understanding of fiduciary responsibility can help avoid the most common retirement plan pitfalls (which can sometimes result in lawsuits). These pitfalls include:
- Excessive Fees: This includes expenses related to investment options, as well as vendor fees.
- Inappropriate Investments: Offering overly risky or complex investments as plan investment options.
- Self-Dealing: Actions that benefit the fiduciaries at the expense of plan participants.
Retirement plan fiduciary responsibilities extend to every facet of plan management, from investment decisions to administrative choices, demanding prudence, loyalty, and diligence. It is important to note that some fiduciary responsibilities can be delegated to experts, including investment advisors and plan administrators.
Whether you're a sponsor, trustee, committee member, or service provider, effective collaboration and a focus on participants' well-being should be front and center. Running a successful plan starts by understanding your primary duties, as outlined below:
Core Duties of a Retirement Plan Fiduciary
- Prudent Decision-Making: Fiduciaries must base their decisions on logical and well-informed processes. This approach provides certain protections in the event of regulatory review.
- Investment Choices: One of the key duties of a fiduciary is to wisely choose and regularly review the available investment options.
- Assessment of Fees and Costs: Regulators often request evidence that plan sponsors comprehend the fees involved and find them reasonable. While this doesn't necessitate choosing the least expensive providers or funds, it does require justifiable reasoning for the costs incurred by both the plan and its participants. Carefully reviewing these expenses is a fundamental fiduciary obligation, as is ensuring that the fees do not unduly burden the participants.
- Robust Plan Documentation: Maintaining detailed and precise documentation is more than just a fiduciary duty; it's also a legal necessity. Clearly presenting the features, policies, and rights associated with the plan not only ensures transparency but also reduces risks.
- Empowering through Education: Equipping plan participants with financial literacy is a fiduciary obligation that can significantly impact retirement outcomes. Offering educational resources, workshops, and personalized guidance fosters informed decision-making.
- Continuous Monitoring and Benchmarking: The fiduciary journey is a continuous commitment. Regularly assessing investment performance, plan features, and service providers ensures alignment with participants' needs and industry best practices.
In an ever-changing regulatory environment, staying current with shifting fiduciary guidelines is essential. At Alesco Advisors, we prioritize staying ahead of the curve to safeguard your retirement plan's success. Our in-depth understanding of retirement plan details and fiduciary duty allows us to offer targeted advice and strategies. We work to deliver the expertise needed to navigate complexities, ensuring compliance and the financial well-being of your employees.