With the year end approaching, we thought we would remind our clients of their fiduciary responsibilities relating to their pension and profit sharing plans. The following are some of the key fiduciary responsibilities.
Under ERISA, retirement-plan fiduciaries are required to act in the participants’ best interest at all times. Fiduciaries may be held personally liable for not meeting ERISA standards. It is imperative that plan fiduciaries establish best-practice governance standards to fulfill your fiduciary duties under ERISA. Following are several best practices to consider.
FIDUCIARY MEETING MINUTES
The Investment Committee should be a formal committee that meets two to four times a year, monitors the investment options, evaluates investment performance, and decides the inclusion or elimination of the funds from the line-up. Committee meetings should be documented in order to provide verification of the actions and decisions relating to the Committee’s policies, procedures, intentions, and actions. Historical summarization of these decisions is useful, not only as a guide for the Committee, but also as evidence in any legal proceedings or Internal Revenue Service examinations. This recommendation includes plans where investments are self directed.
Fiduciary responsibility includes informing the employees of the availability of the plan and its use. The plan sponsors should establish regular investment education for plan participants. The investment education should cover topics such as investment options and the use of the financial institution’s website. The investment education should be provided at least annually and should be documented. Documentation should include topics covered and participant attendance. Most financial institutions have resources to provide this education to your plan participants.
Fiduciaries of your plan include more than the “named” fiduciaries. Any “person who exercises discretionary authority or control over plan assets or plan management, renders investment advice for a fee, or has discretionary authority in the administration of the plan, is deemed a Fiduciary”. The Plan administrator should determine each person or entity operating in this fiduciary capacity and list them in the minutes at least annually. The plan should inform each person on this list of their obligations as a fiduciary to eliminate any question an advisor might have about their responsibilities.
While ERISA does not specify a permissible level of fees, it is the responsibility of the fiduciary to ensure the plan is paying reasonable, not excessive, fees. Fees include not only the fees charged and billed by administrators, trustees, accountants and attorneys but also asset based fees. Under a new ruling from the Department of Labor, investment companies and third party administrators will be required to disclose all the various fees, both hidden and direct fees paid by the plan. Additional information will provide more details to allow an analysis of many of these fees. While the requirement to disclose these fees has been postponed twice, many third party administrators and investment companies will provide that information now. As part of the fiduciary meetings, discussion and analysis, including comparison to fees charged by other service providers, should occur to ensure that your plan is paying reasonable fees.
The audit engagement letter will be forthcoming. We appreciate your business and look forward to continue working with you. If you would like to discuss this information further, please contact me at (510) 893-6908.
Howard M. Zangwill, Stockholder