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What Are Your Company's Obligations as a Retirement Plan Sponsor?

For job seekers, a strong economy and low unemployment numbers have created an environment in which they hold the upper hand in hiring and salary negotiations. As a result, many have begun asserting their right to “hold out” for the best offer.

With the constant competition between companies vying for the best talent, businesses are pulling out all the stops to lure job seekers to their organization. In doing so, many companies have looked to employee benefits to be their differentiator in a sea of competitive employers.

USA Today recently reported that job seekers rank retirement plan offerings second only to healthcare benefits at the top of their wish lists. As such, businesses far and wide have answered the call by making retirement plans part of their standard benefits package.

What is a Retirement Plan Sponsor?

If a business offers their employees a retirement plan—whether they know it or not—they are a retirement plan sponsor. Let me state that again to emphasize this point to the business owners reading this: If you offer your employees a retirement plan, you are a retirement plan sponsor.

As a plan sponsor, you have a fiduciary duty to ensure that your selected plan service providers also meet their standards of professional responsibility that are required by the Employee Retirement Income Security Act (ERISA) or other state and federal laws and regulations applicable to investment advisors. These standards include responsibilities pertaining to selection, fee arrangements, and monitoring the performance of investment managers, administrators, and service providers associated with your company’s retirement plan(s). Without your oversight in these regards, your firm could be held legally liable for the shortcomings of these key plan service providers.

With retirement plans there is no such thing as setting it and forgetting it — even for a short period of time. It is legally imperative that plan sponsors adopt and implement a control environment that is designed to demonstrate how they will satisfy their responsibilities owed to plan beneficiaries.

As a retirement plan sponsor, you have two options for how you meet these responsibilities – either by adopting and implementing carefully designed internal controls or by engaging a firm with whom you may partner to ensure that appropriate measures are being followed.

Knowing where fiduciary responsibility ultimately lies

Many businesses engage an investment advisor in order to mitigate the risk associated with the selection and monitoring of their retirement plan investment option offerings. Essential to this process is the sponsor’s ability to determine whether their advisor will be assuming responsibility for performing functions which will result in the advisor being recognized as the “fiduciary” with respect to these functions.

For example, if you believe that you are receiving investment recommendations from your advisor, you should ensure that this understanding is made clear, in writing, between the parties. This makes clear that you expect the advisor to accept all related responsibilities and liability for the performance of this key plan support function.

Unfortunately, not all fiduciaries are created equal. Only upfront and transparent conversations may reveal the information that a business owner would need to know in order to make a well-informed decision.

Mitigating risk for your business

Business owners should review their advisory agreements with a fine-tooth comb to determine if their existing advisor accepts liability, if they protect you as a plan sponsor, and if they limit your rights and recourse as a sponsor, or those of your employees and plan beneficiaries, under ERISA.

If you determine that your advisor is not a fiduciary, then business owners and senior leaders need to question whether your company is comfortable assuming that level of risk, and possibly reevaluate the purpose that your advisor is serving.

Whether you realize it or not, the standard of professional responsibility has been set for all retirement plan sponsors by the ERISA. You should be able to demonstrate that you’ve conducted the proper due diligence. This can include preparing an RFI for recordkeeping costs, confirming vendor fiduciary commitments, eliminating conflicts of interest, and a variety of other critical hazards. If you aren’t sure what questions to ask or how to accomplish these tasks, the best course is to get help.

SWBC Retirement Plan Services can help organizations by serving as an advocate to evaluate the current state of their plan and provide specific advice to guide plan success. To learn how to properly evaluate you investment advisory firm, click here to download our RFI Evaluation Guide.

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Richard Allison

Richard Allison brings more than 30 years of experience and knowledge to SWBC Investment Advisory Services. His team provides retirement plan solutions using a thorough process of investment research and providing another layer of consulting expertise to our clients.

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