By Kevin O’Connor, Head of Institutional Services at Pacific Portfolio Consulting
The Responsibilities of Administering a Retirement Plan for Employees
As an employer, managing a retirement plan for your employees carries a host of responsibilities and challenges. It can also be a satisfying prospect, as you know you are providing benefits for workers and their families over the long haul.
Meeting the responsibilities of managing a retirement plan for employees requires a little homework, especially when it comes to the fundamentals. There are rules and regulations to shoulder, starting with the Employee Retirement Income Security Act (ERISA). Learning the nuts and bolts of ERISA can set you on the right path to overseeing a dependable retirement plan. Fiduciary best practices include documenting how you will manage the program, manage it accordingly and then document your progress to date.
What is ERISA?
ERISA is a federal law that sets minimum standards for most voluntarily established retirement plans in the private sector. The goal of this law is to set the stage for plan participants, facilitating the access of information about a plan. It also establishes the structure for fiduciary responsibilities, which apply to the plan manager.
What are Fiduciary Responsibilities?
As plan manager, you’ve got a lot on your plate. Meeting your responsibilities is vital to administering the plan within the context of ERISA.
This means understanding that a plan has critical elements, starting with:
The plan itself in writing, detailing things like the benefit structure
A trust fund to hold plan assets
A system of keeping records of financial movement to and from the plan
Documentation available to beneficiaries and government officials
Be sure of yourself when managing employee retirement expectations. Turn to a human resources expert or other officials to exercise discretion and never be afraid to seek help. These experts or involved individuals are also known as fiduciaries and they can be indispensable.
Your retirement plan must have fiduciaries named in writing, which notifies recipients as to who explicitly directs operations. Whether it’s a committee or your board of directors, workers have a right to know who does what and who meets what fiduciary commitment.
Why are Fiduciaries Required?
Fiduciaries are essential because they are subject to standards of conduct and act solely in the best interest of the retirement plan.
Fiduciaries act on behalf of beneficiaries and are designated to provide benefits as a legal responsibility. That means they are free of conflicts of interest and must carry out duties in a judicious manner. Fiduciaries are legally bound to follow ERISA and the plan, plus they must pay fair plan expenses and diversify investments.
This is good because it safeguards a written procedure for financial decision-making, certifying your employees’ retirement plan is followed to the letter.
Are Fiduciaries Liable for Missteps?
Even the best intentions can go awry, so you may be wondering about the responsibility of fiduciaries. If there are mistakes, who is to blame?
Fiduciaries can be protected from liability in the event they do not meet the standards of the plan. In some cases, fiduciaries are accountable on the basis of their profession. If you hire a financial adviser that does not uphold the criteria of the plan, for example, employees may be within their legal rights to sue.
Some fiduciaries have ways of regulating liability. Proper documentation, as discussed above, is the best insurance against miscalculations.
Some plans may be structured to reduce fiduciary decision-making, like in the case of profit-sharing. In these plans, like many 401(k) plans, beneficiaries have control over investments. This naturally limits the tasks of a fiduciary.
What Other Responsibilities Do I Have?
Assuming you’ve hired a fiduciary or third party to manage your employees’ retirement plan, you may be wondering about further obligations.
There are things you may have to do in certain cases, like if the plan requires salary reductions from paychecks to meet plan contributions. Ensure those reductions are made on time in order to separate them from company assets.
Abide by a formal review process and compare services before hiring a fiduciary for the plan. Establish how the fiduciary will be paid. Follow up about any changes to the plan and ensure a direct line of communication to beneficiaries.
Providing a retirement plan for employees isn’t easy, but hiring the right assistance and ensuring the right fiduciary responsibilities are followed can make all the difference. Your employees and their families will thank you for getting it right.
