Retirement plans should be a benefit to you, your employees and your company as a whole. By following ERISA, the Internal Revenue Code and especially the fiduciary duties, your retirement plan can be more of a benefit than a burden. Although the underlying law is 30 years old, changes occur regularly. Here is a look at five issues that can be troublesome, but need not be, with a little attention.
- Your plan should have an established investment policy to be used as a starting point and guideline for all investments and to guide investment advisors. The investment policy should permit a third party to review the investment policy and determine if any particular investment is appropriate.
- Fiduciary duties apply when selecting investments and investment advisors. Applicable fiduciary duties include acting in a reasonable and prudent manner, acting in the exclusive interest of participants and following the investment policy and other Plan documents. Documenting the selection process promotes successful satisfaction of the applicable fiduciary duties.
- When a plan enters into an agreement for products or service, that contract must constitute a reasonable contract. A reasonable contract must meet five requirements: (a) the fees and costs are clearly stated and are reasonable; (b) it has a clear scope and limitation on the products or services provided; (c) it is for a specific duration; (d) quick termination by the plan is permitted; and (e) it is for a product or service reasonable and necessary to the plan.
- Fiduciaries must make investment decisions in the exclusive benefit of plan participants (and beneficiaries). The fiduciaries making investment decisions must take into account the interests of participants without regard to the preferences or interests of the fiduciaries, your company or your employees (including executives). Fiduciaries cannot self-deal, including using plan’s assets for the fiduciaries’ own benefit or gain, receiving consideration in the fiduciaries’ own account from a party providing services to the plan or acting in a capacity adverse to the plan in a transaction involving the plan.
- Fiduciaries have an obligation to monitor investments and advisors. The fiduciary duty to monitor is not a constant monitoring obligation. Fiduciaries should review and monitor the plan’s investments and investment advisors if (a) there is a significant change in the investment market; (b) when you amend the plan or the investment policy; (c) when laws change; (d) significant news about an investment or investment advisor is received; or (e) when concerns arise about the type or location of the investment or the advisor. Fiduciaries should conduct an annual or quarterly review of investments, even if the plan or circumstances have not changed.
Contributed by Charles M. Russman, Attorney, Bodman Law Group.
View the on-demand webinar “ERISA Myths Dispelled: Common Pitfalls & Compliance Problems” with Charles Russman.