Over the last decade, a significant number of lawsuits have been filed against retirement plan sponsors for failing to properly administer their plans and subsequently violating ERISA regulations. Although lawsuits like these were once seen as taboo, they have recently shed light on plan mismanagement and also exposed plan sponsors to a lot of risk.
The most common areas that plan sponsors should ensure they are in compliance with are as follows:
Law firms are focusing their attention on Plans with significant plan assets (definition of “significant” varies per third plan administrator) that are offering higher cost retail share class funds instead of the lower cost institutional share class funds which these plans can typically qualify for.
Plans are also being accused of not monitoring administration fees and remaining with their long-standing third party administrators for years without putting the Plan out to bid. The recommendation from these court proceedings is to perform a competitive Request for Proposal once every three years.
Consolidate investment options and avoid duplicate investments
It is the Plan’s responsibility to offer a consolidated investment listing with the objective of benefiting participants. Plans that offer duplicative investments or too many specialty funds have been challenged and deemed to be too confusing to participants, resulting in fines.
Be diligent in contacting missing participants
Failing to be thorough in attempting to track down missing employees can result in late commencement of benefits. Penalties can be assessed on these late commencements and could also cause qualification issues.
Plan sponsors should create a procedural checklist to document what was done to attempt to locate the missing participant (i.e. search plan and employer records for addresses or other contacts, search the internet, reach out to beneficiaries, hire commercial locator service).
Since these lawsuits are increasing in frequency, we recommend that plan sponsors diligently document all of their fiduciary duties in regards to their plans. Every plan sponsor should form a committee that meets at least quarterly to discuss these items with a particular focus on fees and proper plan administration. Minutes should be kept for all meetings to ensure a proper audit trail is established.
If you want to further discuss these or related topics, contact Donald Butler, CPA. He is a Manager in the firm’s Commercial Business Practice and can be reached at 781-937-5137 or firstname.lastname@example.org.