Fiduciary responsibility for a company’s retirement plan ultimately rests upon Plan Sponsors. Although an Investment Policy Statement (IPS) is required, the requirement does not specify it be in writing. For the best protection, your IPS should be in writing, easy to follow (consider how it will integrate into your company culture and procedures) and monitored regularly. Upon examination, your IPS will be the first document requested by the IRS or the DOL. Without it, you may be considered a negligent fiduciary of your Plan and risk further inquiries from the examiners.
A well-written IPS should be in line your company’s investment philosophy and outline your Plan’s purpose and objectives. Plan Trustees and other advisors should plan on meeting regularly, at a minimum annually, to monitor Plan investments, their performance and any fees charged for Plan management. A comprehensive Investment Policy Statement should also include the following details:
When it comes to fiduciary responsibility, exposure for Plan Sponsors in the event of a lawsuit is the same, regardless of the size of the Plan or the number of participants. In Minnesota, trustees for a smaller-sized plan (under 125 participants, and assets just under $10M) are currently facing a class action lawsuit involving allegations which include a breach of fiduciary duty under ERISA. The charges include improper oversight over excessive plan investment fees; the careless selection of mutual fund classes when suitable lower-cost classes were available; and the selection of assets which were more costly than alternatives in similar industries.
The outcome of this particular lawsuit is still to come, but it is a good reminder that the fiduciaries of smaller company plans have the same obligations of those of larger plans. Adhering to a proactive strategy such as a well-written IPS may protect against a reactive cost such as a lawsuit, which could prove to be catastrophic for smaller Plan Sponsors.
To determine if your 401(k) benefit plan is subject to an audit or for a consultation regarding your current 401(k) plan, contact JoAnn today.
Leave a Reply