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Investment volatility, costs and compliance ranked as top plan risks
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Nearly one-third of workplace retirement plans in the U.S. were audited by the federal government over the past two years.
A Willis Towers Watson survey of more than 300 U.S. employers, conducted in February and March 2016, also found that retirement plan sponsors rank investment volatility, benefits costs and regulatory compliance as the top risks their plans face.
The consultancy's Retirement Plan Governance Survey found that over the past two years:
Participant-paid plan and investment fund fees perceived as excessive are driving more class-action litigation against employers. These lawsuits typically allege that participants' retirement savings were compromised because employers, as plan fiduciaries, failed to act in participants' best interests and breached their duties under the Employee Retirement Income Security Act (ERISA) by allowing high fees, bad fund choices and conflicts of interest. (See the
SHRM Online article "401(k) Plan Sponsors Are Focused on Fees.")
"The fact that 1 in 3 retirement plans have been audited should send a wake-up call to many plan sponsors," said David Speier, a senior retirement consultant at Willis Towers Watson in Washington, D.C. "Regulatory compliance is a top concern, and there is room for a fair number of employers to improve the management of this risk. Proactive reviews of plan operations and compliance processes, for example, should be given a much higher priority at organizations that do not have a structure in place to conduct proactive reviews."
Tellingly, the survey found that 44 percent of plan sponsors had not conducted an operational compliance review of their defined benefit (DB) pension plans in the past two years, while 42 percent had not conducted a similar review of their 401(k) or other defined contribution (DC) plans. About one-third of respondents indicated that limited budgets and resources prevented them from conducting a review over the past two years. (For more on plan sponsors' fiduciary duties, see the
SHRM Online article "Keep Your 401(k) Plan out of Fiduciary Hot Water.")
Among other survey findings:
(For more tips on ways to minimize the risk from a plan audit, see the
SHRM Online article "Render Retirement Plan Audits Painless.")
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