Message Boards
Today's Active Topics Today's Active Cases Browse Forum Categories My Recent Activity My Messages Private Groups My Marked Threads My Subscriptions
Today's Active Images Today's Active Polls Most Active Topics Global Townie Map Advanced Message Board Search Message Board Terms of Use

Essential Items You Need to Know If You Sponsor a Qualified Retirement Plan Larry Mathis, CFP

View Comments (0) More by this author (3)
by Larry Mathis, CFP

On April 1, 2012, the U.S Department of Labor (DOL) regulation, ERISA Section 408(b) (2) will go into effect. This new regulation brings with it a variety of rules that will directly affect what are generally referred to as "qualified retirement plans." Although most of the regulations directly affect service providers it is important that plan sponsors know what their responsibilities are as well. This article is designed to help you understand what your obligations are as a retirement plan sponsor and fiduciary.

The 408(b) (2) regulation will require plan sponsors to receive and review certain disclosures from various plan service providers. As such, service providers must make certain required disclosures to plan sponsors by April 1, 2012. Essentially this regulation is designed to require retirement plan service providers to disclose the fees (direct and indirect) that they charge for their services so that plan sponsors (as fiduciaries) can determine if the fees being charged are reasonable and at the same time identify any potential conflicts of interest that might affect the quality of the services being provided.

What does this mean to you as a sponsor of a qualified retirement plan?
The new disclosure rules will allow plan sponsors to get a true picture of the fees they are paying in their existing plan, which are often difficult to understand or for that matter even see at all. This will enable plan sponsors to make apples-to-apples comparisons when evaluating multiple plans, in regard to the services being offered by service providers and the associated costs of those services. I believe this will ultimately help plan sponsors make better decisions on behalf of the plan participants. In addition I believe this will lead to the reduction of plan fees, which could increase investment returns for participants.



What are your risks as a fiduciary of your retirement plan?
Fiduciaries who do not meet their obligations might be held personally responsible. ERISA Section 409 provides that "any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach…" The criminal and monetary penalties are severe, not to mention the attorney fees, taxes and possibly other costs.

You might be saying at this point, "I probably don't have too much to worry about. I doubt the government is going to be concerned with our plan, it's too small and they have bigger fish to fry." I caution you to not think this way. Instead I encourage you to go to www.dol.gov/ebsa/newsroom/main.html and take a look at some of the recent violations of fiduciaries that the U.S. Department of Labor is pursuing. It's not just the big fish that the DOL is looking to catch, so it is imperative that you are diligent to make sure you are following the regulations.

As an employer sponsoring a retirement plan, you should recognize the fact that you will always be considered a named fiduciary. As a fiduciary it is essential that you act in the interest of the plan participants and their beneficiaries. You must act in a prudent fashion, taking special care to diversify the plans investments, while at the same time being diligent to keep plan expenses reasonable. Furthermore you need to be sure you are acting in accordance with the plan document. Remember your loyalty to plan participants starts at the inception of the plan and continues through the ongoing monitoring of the plan operations and investments.

I would argue that you might want to be more concerned about what you don't know when it comes to understanding ERISA's fiduciary standards. It's important to keep in mind that ERISA laws were enacted to protect the plan sponsor as well as the employees who participate in the plan.

On page 50 is a list of questions that will help you determine what you do and don't know about ERISA compliance. This is not designed to be a substitute for a comprehensive compliance review, but it will give you some idea where you stand. In addition, the Department of Labor has a great resource on their Web site entitled "Meeting Your Fiduciary Responsibilities" at: www.dol.gov/ebsa/publications/fiduciaryresponsibility.html.

If you answer "No" to any of the questions below, you should review your plan's operations, because you might not be in full compliance with ERISA's requirements.
  • Have you communicated to plan participants that the plan is intended to be a 404(c) plan?
  • Do you manage and maintain reasonable plan expenses?
  • Have you provided plan participants with a Summary Plan Description (SPD) and Summary Annual Report (SAR)?
  • Do you maintain copies of the plan documents at your office for examination by plan participants and beneficiaries?
  • Do you respond to written participant inquiries for copies of plan documents and information within 30 days?
  • Does your plan operate in accordance with the plan/trust documents?
  • Do the plan fiduciaries periodically monitor and evaluate plan investments and maintain adequate documentation of investments reviews?
  • Are the plan's investments diversified to help minimize the risk of large losses?
  • Have the plan fiduciaries determined that the investments are prudent and solely in the best interest of the plan participants and beneficiaries, and evaluated the risks associated with the plan investments before making the investments (or making available to the participants if participant directed)?
  • Is your plan covered by a fidelity bond against losses due to fraud or dishonesty?
  • If your plan permits participants to select the investments in the plan accounts, has the plan provided enough information to make informed decisions?
  • Does the plan provide and track ongoing employee investment education?
  • Are the service provider arrangements reasonable, and is the cost and quality of those services in line with the industry?
  • Do the plan fiduciaries meet regularly and keep well-documented minutes of those meetings?
  • Is there a prudent fiduciary decision-making process, and is there sufficient documentation to support their decisions?
  • Does the employer send participant contributions to the plan on a timely basis?
  • Does the plan pay participant benefits on time and in the correct amounts?
If you answer "Yes" to any of the questions below, you should review your plan's operations because you might not be in full compliance with ERISA's requirements.
  • Has the plan engaged in any financial transactions with persons related to the plan or any plan official; for example has the plan made a loan to or participated in an investment with the employer?
  • Has the plan official used the assets of the plan for his/her personal interests?
  • Have plan assets been used to pay expenses that were not authorized in the plan document, were not necessary to the proper administration for the plan, or were more than reasonable in amount?
Is it possible to reduce your risk as fiduciary?
Section 404(c) of ERISA diminishes the plan sponsor's exposure to investment performance liability by placing the burden of investment decisions on plan participants. However, to shift this responsibility to employees, you must comply with the following 404(c) requirements for the plan:
  • Explain that the plan is intended to be a 404(c) plan
  • Offer a diversified range of investments (minimum of three core asset categories) with different risk and reward characteristics
  • Provide participants with the ability to control their investment accounts by allowing them to move between plan investments at least once every quarter
  • Give employees the option to make independent investment choices
  • Educate plan participants about available investment alternatives
  • Manage and maintain reasonable plan expenses
By following 404(c) guidelines, you reduce the likelihood that employees can hold you responsible for disappointing investment returns. However, as a fiduciary, you still hold the responsibility for selecting and monitoring the investments offered in the retirement plan. Remember, your fiduciary responsibilities center on several functions.

Following the steps outlined below will help to keep you on the right path as a plan sponsor and plan fiduciary.

Adopting a Plan/Trust
Although ERISA provides some latitude in how you design your company's retirement plan (subject to coverage and discrimination requirements imposed on qualified plans by the Internal Revenue Code), your plan must include:
  • a written description of the benefit structure and operational guidelines
  • a trust fund to hold your plan's assets
  • formalized documentation to track the flow of money
  • plan documents available for review by participants and the government, such as a Summary Plan Description (SPD), Summary of Material Modification (SMM) and Summary Annual Report (SAR)
Maintain Records
Scrupulous records of your fiduciary functions – including the filing of plan documents and reports, meeting minutes and written records of any other activity related to the administration or monitoring of the plan and plan assets – should be held for a minimum of six years.

Assign Other Plan Fiduciaries
Determine who will share in the fiduciary responsibilities. Typically, the plan sponsor and board of trustees share in this effort. Once fiduciaries have been assigned, delegate authority and document it in writing. Be sure to include investment selection, oversight of plan operations and trustee appointments.

Develop an Investment Policy Statement (IPS)
This document establishes the objectives for the management of the investments in the plan. It details the investment selection, monitoring and performance evaluation processes. Even though ERISA doesn't require an IPS, this documentation will show evidence of fiduciary due diligence in the event of an audit by the Department of Labor.

Analyze the Needs of Plan Participants
Assess your employees' investment knowledge, ability to balance risk and reward, their proximity to retirement and their current and potential investment needs.

Evaluate Investment Providers
Choose the best fit for your plan. Compare investment providers based on the quality of diversified options with full asset class coverage and the services offered. Identify the optimal provider to fulfill the needs of employees.

Select Diversified Investment Options
The investments selected for the plan should meet the needs of the workforce. A fiduciary is responsible for pursuing a breadth of options among asset classes in support of the participant criteria, including age, risk aversion and financial knowledge. The initial selection should include a review of performance, fees, investment style and risk. Choose "core" investments that are diversified and have a broad range of risk and return characteristics. The investments should provide diversification within these categories:
  • Asset classes, such as bonds, equities and cash
  • Investment categories, such as growth funds and emerging market funds
  • Potential risk and return
Inform Employees of Their Investment Options
It is essential that you communicate with your employees. As a fiduciary, it's your responsibility to explain the plan to them and provide them with enough information to make informed investment decisions. Participants who understand the plan are more likely to appreciate the benefits and make regular contributions. Be sure to:
  • explain the benefits of the plan
  • provide an overview of the financial planning process
  • rely on asset allocation support from materials to help individuals determine their retirement income needs
  • review the risks and rewards associated with various investments
  • provide prospectuses, financial statements and reports, and other information – as appropriate for product/program
Keep Participants Apprised of Investment Performance Investment features that can help participants keep track of their investments include:
  • Periodic account statements
  • Phone and Web-based account access
  • Investment information via newsletters, inserts, etc.
Allow and Inform Participants on How to Move Among Plan Investments
Participants should be able to provide investment transfer instructions at least once every three months. The plan should accommodate migration frequency between investments, based on the market volatility of each investment. In today's Internet world most plans easily allow for online fund transfers.

Though all of this might seem a bit overwhelming, the right tools, resources and professional guidance can provide a clear and practical approach to complying with your fiduciary responsibilities. This article is designed to help you understand what your obligations are as a retirement plan sponsor and fiduciary. If after reading this article you feel that perhaps there are areas in your plan that might require some attention, I suggest you schedule a joint meeting (for a comprehensive review of your plan) with your plan administrator, your investment professional, as well as anyone else who you believe might be considered a fiduciary on your plan. On the other hand, if after reading this article you feel you are doing everything required as a plan fiduciary, I recommend you follow the above suggestion.

Resources:
  1. Akin Gump Strauss Hauer & Feld. "ERISA Alert." 13 Aug. 2011: 1-3. Web. 11 Sept. 2011. Lincoln Financial Group. "Be Prepared." Fiduciary Solutions Guide. Z03 ed. Radnor: Lincoln National Corporation, 2011. 2-10. Print.
  2. Ridgeworth Investments. "The New Fee Disclosure Under ERISA." Fiduciary Focus. July ed. Atlanta: Ridgeworth Capital Management, Inc., 2011. 1-7. Web. 11 Sept. 2011.
  3. Saxon, Stephen M. and Ellen M. Goodwin. "Are you ready for DoL service provider disclosure requirements?" www.plansponsor.com. N.p., 2011. Web. 11 Sept. 2011.
  4. United States Department of Labor. "Meeting Your Fiduciary Responsibilities." Washington, D.C.: Employee Benefits Security Administration, 2011. N. pag. Web. 11 Sept. 2011. www.investopedia.com. Investopedia ULC, 2011. Web. 11 Sept.2011.
Author’s Bio
Larry Mathis is a Certified Financial Planner professional. He operates a personal financial planning practice in Phoenix, Arizona, with clients throughout the U.S. Larry works primarily with dental professionals and is the author of Bridging the Financial Gap for Dentists – What Every Dentist Should Know About Managing Money. Larry has spoken for numerous dental organizations, including the American Association of Orthodontists, the Western Regional Dental Conference and the Arizona School of Dentistry & Oral Health at A.T. Still University.

Larry Mathis is registered principal offering securities and advisory services through United Planners' Financial Services of America – A Limited Partnership – Member: FINRA, SIPC.
Orthotown Magazine
September 2025
Orthotown Magazine September 2025 Read Current Issue Read Archived Issues
Sponsors
Townie® Poll
Do you have a dedicated insurance coordinator in your office?
  
Site Menu
Message Boards Magazine Continuing Education Podcasts Blogs Classifieds News Events Townie® Poll Ebooks Townie Choice Awards
Company Info
Contact Us Advertise With Us Howard Farran DDS, MBA Policies and Agreements
Site Help
Sally Gross, Member Services Specialist
Phone: +1-480-445-9710
Email: sally@farranmedia.com
©2025 Orthotown, a division of Farran Media • All Rights Reserved
9633 S. 48th Street Suite 200 • Phoenix, AZ 85044 • Phone:+1-480-598-0001 • Fax:+1-480-598-3450