Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) are intent on making certain that retirement plans focus on best practices and good plan governance. The expectation of these agencies is that the interests of participants will be better protected if plans operate at a high level. Of course, having good plan governance and operating with best practices also limits the liability of plan fiduciaries, so they have an interest in good plan governance as well.
The DOL has been suggesting with some frequency that plans should engage in fiduciary training. At this time, there is no legal mandate for fiduciary training. Many plan fiduciaries are plan sponsor owners and/or employees. These people, meaning well, have typically not been educated about the complex fiduciary duty rules of ERISA. Plan administrative committees should make it part of their usual meeting routine to have periodic education and updating about their fiduciary duties. And, in small businesses where we frequently see a business owner or other employee of the plan sponsor serve as plan trustee (a situation we try to dissuade sponsors from allowing), it is extremely important for the trustee to understand his or her duties under ERISA. Fiduciaries need to appreciate that ERISA liability is personal.
The IRS has been focusing on internal controls for qualified plans to help them maintain their tax qualification. It believes that a system of good internal controls will benefit plan operation enormously. (As discussed here and here.) The IRS is also about to issue its self-audit tool, probably in January 2014. The self-audit tool, Questionnaire Self Audit Tool (QSAT), is intended to assist plan fiduciaries with internal controls over plan operation Because plans vary in their operations, the QSAT will be a helpful tool for identifying potential problems, but plan sponsors and administrators should not view it as a substitute for a thorough understanding of plan operations. Utilizing the QSAT would be evidence of a plan sponsor or administrator exercising its fiduciary diligence and therefore fiduciaries should watch for its release.
Here are 25 additional suggestions (we actually have several dozen) to improve your plan governance as we head into next year:
1. Identify your plan fiduciaries, both internal and external, and make certain their roles are known and understood.
2. Review administrative service agreements to make certain they are proper and are being followed.
3. Identify any delegation of fiduciary duties, make certain that the delegations are in writing (like corporate charters or board resolutions) and are being followed correctly.
4. Be certain that the fiduciaries have maintained required oversight of those to whom there has been a delegation and have procedures in place to assure that oversight occurs. While not explicitly required, some written evidence of these procedures is desirable. Of course, if you put it in writing, you should also make sure that writing is being followed.
5. Review efforts of all fiduciaries to make certain that the ERISA prudence requirement is being met by them.
6. Make certain that the plan terms are being following in operation.
7. Confirm that all required plan amendments have been made timely, and, if not, that correction is undertaken.
8. Review all plan policies and procedures to make certain they are accurate and complete.
9. Check the plan forms for accuracy, completeness, and consistency with the applicable plan documents and be certain that there is a process in place to do so periodically.
10. Confirm that disclosures (whether written or electronic) comply with DOL and/or IRS form, timing, and delivery requirements.
11. Hold regular administrative committee meetings.
12. Memorialize all administrative committee actions and rationale.
13. Engage the services of an independent investment advisor.
14. Have a document retention system and recordkeeping policy in place.
15. Review plan transactions to confirm that there have been no prohibited transactions.
16. Verify that there have been no self-dealing transactions.
17. Plan administrators should confirm that they meet ERISA requirements for prudence and process with effective due diligence procedures in place when selecting plan service providers, plan investment options, and in exercising other matters involving their discretion.
18. Confirm that the claims review procedures are current and followed.
19. Confirm that plan funding is timely (especially the funding of elective deferrals and participant loan payments).
20. To the extent applicable, make certain that plan documents allow for payment of plan expenses and that expenses paid from the plan are proper plan expenses and not settlor expenses.
21. Confirm that proper fee disclosures have been received and reviewed and that the responsible fiduciaries understand them.
22. If the plan is intended to comply with 404(c), confirm that it meets the requirements.
23. Verify that the ERISA bond is in place and in the appropriate amount.
24. Confirm that there are no conflicts of interest with any service providers.
25. Monitor the 401(k) investment menu regularly.