A 401(k) Fiduciary Checklist 2021

TAKEN IN PART FROM OUR FRIENDS AT SHRM/BY EDWARD J. ROMANOWSKY

Items to consider when outsourcing plan oversight responsibilities

Many retirement plan sponsors are under-informed about their ongoing fiduciary duty when making decisions regarding their 401(k) plan. The Supreme Court case Tibble v. Edison International affirmed that plan sponsors have ongoing fiduciary responsibilities to put the financial interests of plan participants above their own, unless they delegate these responsibilities by appointing a qualified financial professional under Section 3(21) or Section 3(38) of the Employee Retirement Income Security Act (ERISA).

If the plan sponsor does not use its power to, in effect, outsource its fiduciary duty to monitor the plan’s administration and its investments, then the plan sponsor remains liable and at risk for any actions—or lack of actions—taken on behalf of the plan.

As a fiduciary, plan sponsors are responsible for the following:

• Making decisions that are in the best interest of members of the plan.

• Following the summary plan description.

• Diversifying investment options within the plan - based upon the plan’s Investment Policy Statement (IPS).

• Monitoring the investment performance within the plan (IPS).

• Replacing an investment that is no longer appropriate for the plan (IPS).

• Minimizing expenses / costs of the plan and its investments.

• Using the “prudent person” rule when acting as the fiduciary of the plan.

• Monitoring all contributions (employee and employer).

• Educating plan members on investment options within the plan.

• Making sure the plan document is being updated to incorporate any changes to the plan and changes in the law that would affect or influence the plan.

As is evident from the above list, acting as a fiduciary brings added liabilities. As a fiduciary, plan sponsors must stay informed and act as needed to reduce their liability and keep the plan compliant. This is why many plan fiduciaries and trustees hire a registered investment advisor to take on some of their fiduciary duties.

Selecting an Outside Fiduciary

Here are some items to consider when selecting a plan service provider to take over some of the plan sponsor’s fiduciary responsibilities:

• Is the provider willing to sign on as an ERISA fiduciary under 3(21) or 3(28)?

• Do you have the option to bring along an Institutional fiduciary?

• What is its process in determining the plan’s investments?

• What are the expectations of ongoing communications?

• How often will the service provider be available to provide employee education and audit preparedness?

• Is the service provider capable of providing enhanced services for the participants?

And here are some warning signs:

• Beware of designations that infer a fiduciary responsibility without the proper service agreement.

• Creating a practical Investment Policy Statement (IPS) for the plan is not a priority.

• Beware of companies that tout assets under management as a reason to hire it.

• Existing client references are hard to come by.

• Beware of firms that opt for higher cost share classes within the investment options.

Finally, when hiring an advisor to take on fiduciary duties, remember that overseeing the outside fiduciary is one responsibility that can’t be outsourced.