You’ve probably heard that recent litigation over breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA) has been making a stir. It’s important to recognize that fiduciaries of retirement plans for small businesses have the same legal obligations as those for large plans, and lawsuits can (and do) occur for companies of any size.
Here’s what plan sponsors need to know in order to keep their retirement benefits plan management practices smart, well-documented, and in compliance.
Fiduciary isn’t just a fun word to say—it’s important for plan sponsors to grasp the full context, since they have accepted fiduciary responsibility for their company’s retirement plan.
In a nutshell, “fiduciary” means held or given in trust. In accepting the fiduciary duty of acting as Plan Sponsor, you are committing to act in the best interests of the plan beneficiaries.
That’s where the Investment Policy Statement (IPS) comes in. The purpose of an IPS is to provide plan sponsors with a framework for making decisions about plan investments. Though not officially required, it’s one of the first things the IRS will ask for in the event of an audit.
In fact, many of our key learnings from 2020 audits related to documentation of responsible Plan management.
A well-written IPS should outline your plan’s purpose and objectives. It should also state your company’s investment philosophy.
To make your IPS as comprehensive as possible, and to protect you and your company in the event of an audit or litigation, include the following:
First, you must be able to produce one when the IRS comes knocking on your door for an audit.
But here’s an even more compelling reason: a well-written IPS is a proactive strategy. It helps safeguard plan sponsors against lawsuits and other unwanted complexities. For small plan sponsors in particular, a lawsuit can be catastrophic, so decrease your liability in advance with a well-thought-out and well-executed IPS.
If your investment policy requires review, we’re here to help! Contact us today for more information and to schedule your virtual appointment with Cassell Plan Audits at 630.886.7669.