In a recent article by JD Supra, we learned that being a plan sponsor is quite a difficult task, because besides setting up a plan, one needs to watch it constantly due to the liability exposure. Every plan sponsor should do their best to minimize their liability and courtesy of author, Ary Rosenbaum, here is a list of simple steps how you can do it:
- Being aware of your fiduciary duty. Every 401(k) plan sponsor is a fiduciary, which requires them to act in the best interest of their client (plan participants), and if they don’t do their job properly, they might be liable for any damages their actions have caused,
- Employing the right plan providers. Selecting a proper plan provider is as important as taking care of the plan line-up. The rule of thumb here is to hire a plan provider with experience and high expertise in 401(k) plans,
- Finding the right TPA (third-party administrator), who would be good with compliance and won’t put your 401(k) plan at risk of penalties, fines, or corrective contributions,
- Buying insurance. As a fiduciary every plan sponsor should protect their plan in any way possible, and having it insured is as important as creating a trustworthy relationships with the plan participants
- Checking disclosures and benchmarking fees. Fiduciary responsibilities include thorough analysis and benchmark of the fees, to make sure they’re reasonable enough and not excessively high
- Hiring an independent consultant to review your plan. Since a plan provider might not disclose all the errors in the plan, you should consider having an independent specialist review your plan to avoid potential liability
- Communicating with plan participants. Plans are designed for the benefit of employees, which should not be forgotten, and the best way to reduce liability risks is not to ignore employees when it comes to their 401(k) plan
- Having good records. You need to make sure that all investments are selected or replaced in accordance with an investment policy statement, all the process are properly recorded, and the copies are kept.
Following these simple steps you’ll not only minimize your liability risks but you’ll be a trustworthy plan sponsor which is as important. Maintaining a prudent process and having the right tools for the job is critical for the execution of these steps.