Get access to the exclusive HR Resources you need to succeed in 2018.
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 14 cities across the U.S. this fall.
Gain the skills you need to rise to the next level in your career. Jon us at SHRM's Leadership Development Forum, October 2-3 in Boston.
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.
• Minimizing expenses to defraying the costs of the plan and its investments.
• Monitoring the investment performance within the plan.
• Replacing an investment that is no longer appropriate for the plan.
• 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 or all of the plan sponsor’s fiduciary responsibilities:
• Does the firm have fiduciary liability insurance?
• Is it willing to sign off on the form 5500sf as a fiduciary?
• What is its process in determining the plan’s investments?
• What are the expectations of ongoing communications?
• How many times will representatives of the company be on site to provide employee education and audit preparedness?
• What investment and plan fee structure options are available?
And here are some warning signs:
• Beware of designations that infer a fiduciary responsibility without the proper insurance coverage.
• Beware of companies that tout assets under management as a reason to hire it.
• Beware of firms that refuse to sign off on the form 5500sf as a co-fiduciary.
• Beware of firms that refuse to give at least one reference.
• Beware of firms that opt for higher cost share classes within the investment options.
Finally, when hiring an advisor to take over fiduciary duties, remember that overseeing the outside fiduciary is one responsibility that can’t be outsourced.
Edward E. Romanowsky is the founding partner of
Visionary 401(k) Solutions
Related SHRM Articles:
Keep Your 401(k) Plan Out of Fiduciary Hot Water,
SHRM Online Benefits, July 2016
Supreme Court: Fiduciaries Have Ongoing Duty to Monitor Investments,
SHRM Online Employment Law, May 2015
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
CA Resources at Your Fingertips
SHRM’s HR Vendor Directory contains over 10,000 companies