News items every day bring reports of another reason to safeguard your retirement plan in many ways, from losses in the market, to proper documentation and record keeping, using your fiduciary support team to be fully engaged in keeping your plan as safe as possible from lawsuits.
In 1974 the Employee Retirement Income Securities Act was implemented. However, little was done to monitor and ensure compliance of retirement plans covered by the act for the next 30 years. As a result, the retirement market developed without much concern for compliance. But in 2012 the Department of Labor began a concerted effort to audit retirement plans and found that nearly 3 out of 4 plans were non-compliant. Subsequently, over the last few years, fines and penalties have brought the DOL (and correspondingly cost businesses) billions of dollars from non-compliance issues. This is one of reasons the DOL hired a large number of new agents recently and have announced a “mandate” to audit all plans in America.
Another recent development in the retirement plan world is the presence of class action and other lawsuits flooding the market. Law firms are using social media, billboards, radio advertising and other marketing methods just to identify workers who participate in a retirement plan at their work to determine if there are any obvious grounds to file a claim. That claim can be against and around statutory compliance issues as well as fee issues and investment suitability.(A January 2018 article from the National Association of Plan Advisors addresses another example in a lawsuit which names the Plan Advisor and makes a good argument for performing benchmarking.)
Plan Sponsors would be wise to consider “benchmarking” their plans to enable them to understand whether their plan currently has all the features required to be safe and compliant, and to make sure fees are in line with plans of similar size and type.
Typically the results of this analysis provides 3 potential options for sponsors, all of which are to the sponsor’s benefit.
- The benchmarking may show that there is a better designed plan that provides better protections and/or lower fees. Obviously knowing this is to the Plan sponsor’s benefit.
- The benchmarking may show that, in general, the current plan is a good value but adding fiduciary services to the plan would be beneficial. This is also beneficial to the plan sponsor.
- Your current provider may see that you are benchmarking the plan and lowers your fees in an attempt to keep from losing the plan. Unfortunately, if they can lower the fees today they probably could have lowered the fees some time ago so you are may not wish to deal with them any more, but it is entirely up to you.
Again, all these things are to your benefit. Then, there is a fourth thing that will always occur.
- This benchmarking will provide you with proof of due diligence the DOL recommends that a plan sponsor does on a periodic basis to make sure that the plan is priced properly and has the proper design for your participants.