Why it’s Important to Review, Refresh and Revise Retirement Plan Documents

You likely recognize the importance of seeing your doctor for an annual physical to keep your health in tip-top shape or taking your car in for routine maintenance to keep it running like new. But, what about checking the health of your retirement plan? When is the last time you reviewed your key retirement plan documents to monitor your plan’s compliance with specific standards of conduct and fiduciary responsibilities under the law?

Ideally, you should meet with your plan’s advisor at least once a year to evaluate the overall health of your retirement plan, which includes reviewing plan documents and operations to help ensure they are up to date with current guidance and regulations.

Always a Fiduciary: An Ongoing Responsibility

As a retirement plan fiduciary, adhering to plan documents is one of your most important roles. As a plan sponsor, you are a fiduciary to the plan. This means you have an ongoing and continuous responsibility to monitor the plan, service providers, investment offerings and operations. It is your job to ensure they are being managed in the sole interest of your participants and their beneficiaries, and for the exclusive purpose of providing benefits and paying plan expenses.[1] Not following these standards of conduct could subject you to personal liabilities. In addition, courts could take action against plan fiduciaries who breach their responsibilities. There has already been a plethora of lawsuits against plan fiduciaries in recent years.

Associate Supreme Court Justice Stephen J. Breyer famously submitted his verdict of the landmark Tibble v. Edison case, which set a precedent for fiduciary breach cases regarding the monitoring and selection of retirement plan investments. He stated that “… a trustee has a continuing duty - separate and apart from the duty to exercise prudence in selecting investments at the outset - to monitor, and remove imprudent, trust investments.” In short, monitoring and managing your retirement plan, its investments and operations are not responsibilities to be taken lightly.

Compliance Never Sleeps

Moreover, government and regulatory agencies such as the Department of Labor (DOL) are continually monitoring plan fiduciaries to make sure they are following plan documents and procedures in accordance with the Employee Retirement Income Security Act (ERISA), the law that governs employer-sponsored retirement plans. Ultimately, this puts the onus of compliance and proper plan management on you. That said, it can be helpful to partner with your plan advisor to perform annual plan reviews for any common mistakes while managing your retirement plan and investments.

Addressing Six Common Mistakes

1. Poor investment oversight. Create an investment committee, led by a qualified financial professional, and conduct periodic investment reviews and ongoing monitoring towards ensuring the plan’s investment options and fees are appropriate for all participants.

2. Failure to conduct periodic plan reviews. Regulations are constantly evolving and changing. Conducting a periodic plan review or benchmarking process, preferably with an independent third party, can help ensure that plan fees are reasonable, and the plan is promoting positive outcomes for participants.

3. Failure to take timely action. Having knowledge of potential compliance, investment, plan fees or other significant issues, but failing to remedy them in a timely manner, can result in serious penalties or personal liability for plan fiduciaries.

4. Lack of an up-to-date Investment Policy Statement (IPS). Typically maintained by the retirement plan investment committee with help from the plan advisor, the IPS guidelines address how the plan’s investment options are selected, monitored, and managed. The IPS should be periodically reviewed and updated to reflect the plan’s current goals. Many employers create an IPS but fail to follow or update it, putting them at risk for a breach of fiduciary duty.

5. Lack of a proactive participant education and communication plan. Three markers of retirement plan success are widespread participation, high savings rates, and adequate investment diversification. An effective participant education and communication program can help increase deferrals and promote proper asset allocation for participants. It can also make a significant difference in your plan’s success.

6. Not following the terms of the plan document. It is important to make sure employees are being enrolled as they become eligible, participants are receiving the correct employer matching contributions, and loans and distributions are being handled according to the policies and procedures in the plan documents.

If you identify operational or compliance errors during your annual review - do not panic. The Internal Revenue Service (IRS) and DOL have programs to assist you in fixing mistakes. Your plan’s advisor and third-party administrator (TPA) can help with operational and compliance errors, too.

Keep in mind that once you have identified and corrected any plan errors, you should put processes in place to avoid future mistakes. In addition to conducting annual reviews, you should also perform regular maintenance to ensure your plan remains in good health, just like sticking to a healthy regimen to prevent illness and performing routine tune-ups on your car to keep it at its best.

[1] U.S. Department of Labor. “Fiduciary Responsibilities.”

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and are subject to change without notice. The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Certain risks exist with any type of investment and should be considered carefully before making any investment decisions. Keep in mind that current and historical facts may not be indicative of future results. The information provided is for educational purposes only and not intended to provide any investment, tax or legal advice. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.