What Are the Employer's Responsibilities as Benefits Plan Managers?
by Edward Lynch
Over the last decade, employers who sponsor retirement benefits such as 401(k) and 403(b) plans have become much more aware that properly managing those plans entail what are called “fiduciary responsibilities” or “fiduciary duties.” They have also learned that those duties require careful oversight, what is called an “expert standard.”
While this may seem daunting, perhaps even a bit intimidating, there are four clear and common sense guidelines that, if followed, can make the job easy.
Here they are:
When managing fiduciary responsibilities, you are acting on behalf of your employees. As such, you are required to act solely in the interest of the plan and the plan’s participants and beneficiaries.
The “prudent expert standard” means you must act with the care, skill and judgement that an expert in every aspect of plan management would exercise if they were in charge. In short, if you lack the resources and skills of an expert, you ought to hire an expert. (Note: When hiring outside agents, you are required to regularly review their performance in the job you’ve hired them to do, just as you would any employee).
Acting in the best interests of your employees requires you have a range of investment options that will enable them to diversify in order to reduce the risk of large losses. These options must be carefully chosen (see “Act Prudently” above) and enough information should be provided for employees to make informed investment decisions. (Note: You must consider fees and expenses in the same way you would evaluate any service provider you might hire. “Reasonable” is the standard).
When managing fiduciary responsibilities, your documentation has to be current and has to reflect the steps you have taken in following the guidelines above. Information you will want to have readily available includes:
Options you considered before making a hiring or investing decisionCriteria you used to evaluate a service provider or productHow you evaluated the reasonableness of cost for the value of the service you receivedHow you monitored and regularly reviewed whether the service provider was delivering what you hired them to provide in a satisfactory way
When you pause and consider these guidelines you may realize something interesting: Managing your retirement benefit plan responsibilities isn’t all that different from the managerial or executive responsibilities you handle every day.
The specific administrative, investment, legal and regulatory expertise can be hired. Your job is to set goals, evaluate whether the job is getting done and make adjustments and changes as needed along the way.
Do you feel better prepared for the job now?