Neglecting Retirement Plan Fiduciary Obligations: Plan Sponsors have “Nowhere to Run”

Summary

Employers who sponsor defined contribution (DC) retirement plans for their employees select the plan’s broker, record keeper, and third party administrator (TPA) as well as determine the plan design, pick investment options, and educate employees about the program. These plans can be rewarding and beneficial for both employer and employee. Most such plans are, however, subject to the Employee Retirement Income Security Act of 1974 (ERISA) which imposes significant fiduciary obligations on the individuals serving as plan sponsors. In some cases the individuals can be held personally liable for losses.

The good news is that the government provides guidance for best practices which, if followed, significantly reduce plan sponsor liability. These practices address vendor selection (broker, record keeper and TPA), investment guidelines, and educational policy among other matters.

The article outlines the key points of a strong retirement program that will significantly reduce fiduciary liability.

Real World Risks

Three examples where plan sponsors failed to meet their ERISA fiduciary obligations:

• Flagstar Bank agreed to make a $3 million payment to its 401(k) plan for allowing investments in its own stock during the Great Recession, “when they allegedly knew, or should have know, that such investment was imprudent.”

• Coin Builders LLC of Wisconsin Rapids and its president was sued by the Department of Labor for improperly transferring $1.3 million in plan assets to a Coin Builders bank account. The president also allegedly handled plan assets without being bonded as required by ERISA.

• Engineering giant Bechtel has agreed to an $18.5 million settlement of an excessive 401(k) fee suit.

• The following retirement plan strategies may reduce the likelihood that these types of lawsuits will happen to your organization.

Core Elements of a Retirement Plan

All ERISA retirement plans must include:

• A written plan that describes benefit structure and guides day-to-day operations.
• A trust account that holds the plan’s assets.
• A recordkeeping system to track the flow of monies to and from the plan.
• Reports that furnish mandatory disclosures (e.g., fees)  to plan participants, beneficiaries, and government.

Who Will Manage Your Retirement Benefits Plan?

Selection of reputable and competent vendors and assignment of the right staff or board members are integral to implementing a compliant plan:

• Hiring outside professionals (e.g., investment advisor)
• Forming an internal administrative committee
•  Assigning management to Human Resources if applicable
•  A combination of the above

Six Important Rules for Fiduciaries of Retirement Plans

Following these six rules can help reduce fiduciary risk:

1. Act solely in the interests of the plan participants and exclusively for the purpose of providing benefits.
2. Act "prudently" and document decision making
3. Follow the terms of your plan (except where it conflicts with ERISA) and keep it current.
4. Diversify investments to minimize risk of loss
5. Pay only "reasonable" expenses and fees
6. Avoid "prohibited" transactions

The “prudent man rule” in ERISA requires fiduciaries to carry out their duties with the same "care, skill, prudence and diligence" as would a person who is familiar with the subject and has the capacity to understand the issues.

Document Your Process and Build an Inspection Ready ERISA File

Your assigned staff with the help of your broker/consultant should ensure that appropriate documentation has been kept on your process: An inspection ready ERISA file should include:

• Basic plan document w/amendments, adoption agreement, SPD
• IRS opinion, advisory, or determination letter
• Investment policy statement and ongoing IPC minutes
• Investment contracts, prospectuses, semi-annual reports
• Form 5500, summary annual report.
• ADP/ACP and other required tests
• Fidelity bond
• 404(c) documentation (regarding diversification of plan investments)
• 408(b)(2) disclosures & reasonableness determination of service providers (service provider disclosures of services, fiduciary status, and compensation)
• 404(a)(5) participant disclosures (plan sponsor explanation of fees and expenses deducted from participant accounts)
• Performance, monitoring, benchmarking, & fee analysis reports
• Education and enrollment information
• Qualified Default Investment Alternative (QDIA) determination (the account into which contributions are placed when no investment election has been make by the participant)

This article was written by: Bob Trobe, Managing Director at Crystal & Company. For more information please contact Bob at 212.504.5960 or robert.trobe@crystalco.com

Do Your Teams Have the Qualities Necessary for Success?

Whether it’s every day or for a special project, at some point of time we all have to do some form of collaborative teamwork. Some people dread this, others look forward to it. What are some qualities to instill in your team in order to ensure success? Astronology covers five critical qualities of a successful team.

Communication:

                

Clear consistent communication is extremely important. There is nothing worse than when team members don’t feel comfortable voicing their opinions and ideas.  Open and clear communication has to be promoted within the group. Having a facilitator for brainstorming sessions will be helpful in enforcing this. Facilitators have to be mindful to encourage all participants to contribute and, more importantly, acknowledge each contribution given. A facilitator also has to guide the selection of the best solution / process for the team. Recording meeting sessions via notes and sending these notes afterwards will also promote clear communication.

Active Listening:

Hand in hand with clear communication, team members must practice active listening. This form of listening is important because it can create meaningful dialogue when it comes to deliberating on a decision. Active listening requires team members to listen with the intent to understand, not with the intent to respond. This will allow the speaker to freely voice his / her thoughts and, most importantly, allow the other team members the chance to thoroughly think about what is suggested. This also means dismissive attitudes cannot be tolerated. An effective technique to use in order to encourage active listening is, after a suggestion is made, or a thought is shared, a team member – preferably the facilitator – repeats what has been said in order to verify that everyone has the same understanding.

Commitment:

Although ideally we would like to think that everyone on a team is committed to the assignment, unfortunately this is not always the case. A starting point for success is the commitment level of the team leader or facilitator. A Forbes online article on the top qualities of a great leader stated that “There is no greater motivation than seeing the boss down in the trenches working alongside everyone else, showing that hard work is being done on every level.” As a team leader / facilitator, are you also assigning yourself tasks when it comes to delegation? Does the rest of the team see that you are also hard at work? Your demonstration of your sense of responsibility will echo to your team and can encourage everyone to take their roles more seriously.

Respect and Support:

Two other key qualities are respect and support. If a team leader can’t demonstrate respect and support to a teammate, nothing will be accomplished. Team members won’t feel free to express themselves, and team morale will lower significantly as a result. One articled suggested that team members, “…don’t place conditions on when they’ll provide assistance, when they’ll choose to listen, and when they’ll share information. Good team players also have a sense of humor and know how to have fun (and all teams can use a bit of both), but they don’t have fun at someone else’s expense.”

All of these qualities contribute to positive team morale and effectiveness in handling team assignments. There may be additional qualities, however, that other teams may value more than ones mentioned above. What qualities do you value in a team? Write to Astron and share your team’s keys to success!

No Vacation Nation?

In our last Astronology, we discussed work / life balance in America, with a primary focus on the negative outcomes from improper balance and what some employers are doing to combat them. In this issue of Astronology, we’ll explore a key component of work / life balance – the vacation policy.

‘No Vacation Nation’

Did you know that America is considered the “No Vacation Nation”? CNN reported in a 2011 online article that roughly 57% of U.S. workers use up all the vacation days they’re allotted. As mentioned in our previous article, employees can be overworked from not taking adequate breaks or rest from work. The results from workplace stress can impact an organization so much that absenteeism increases, employees have lower job satisfaction, and eventually, employees have a lower commitment to the organization overall.

Under federal law United States employers are not obligated to offer any paid vacation. Although many organizations aren’t required to give vacation time, however, it doesn’t mean they don’t offer it. A Center for Economic and Policy Research report states “Almost one in four Americans (23%) have no paid vacation and no paid holidays.” This means that a significant number do enjoy time off benefits.

Although the number of Americans that are offered paid vacation is quite large, when comparing the amount of days given for vacation time, we see surprisingly that the typical U.S. worker at a private company gets 10 days of paid vacation and six paid holidays per year. In contrast, our European counterparts are required by law to set a minimum of 20 days paid vacation per year for employees. In recent years, however, the US approach is changing, as organizations are creating unique vacation policies. Take a look at what the following organizations offer, for example:

• Paid, Paid Vacation: A cloud base contact management for individuals and business organization, FullContact offers its employees once a year, $7,500 to go on vacation…and completely disconnect from work (no emailing!). 
• Two Weeks Paid Vacation and Use of Services: An online social network designed to help travelers find free local accommodations, CouchSurfing not only offer employees two weeks of paid time off, but also encourages usage of its own services in order for employees to have a vacation. 
• One Week Off and Additional Spending Money: The CEO of Evernote offers employees unlimited vacation time and $1,000 spending money to take off at least a week at a time. 
• Unlimited Vacation: An online book retailer, Chegg, lets its employees take as much vacation as they choose.

The reality for many organizations is that offering unlimited vacations and additional money is not feasible. But all organizations can find unique ways to promote a healthy work / life balance. Have you looked into ways you could possibly do so? For instance, here at Astron, during the summer months, employees are offered ½ days on Fridays. This allows employees to take advantage of fun events that occur here in New York during the summer, as well as give employees a satisfactory pause from their usual routine. As always, if your organization offers anything unique in regards to vacation policy and work / life balance, Let us know and we’ll gladly share your thoughts here at Astronology.