This is the time of year when we see lots of articles on hot plan trends for 2021 and what benefits innovations plan sponsors are adopting. This is all well and good, but the beginning of the new year is also a good time for fiduciaries to review basic plan policies and operations to see how they can be improved. The better these are, the greater the chances your plan will survive an audit with no change or prevail in a fiduciary breach lawsuit. We all know that 2020 was a banner year for ERISA litigation, and there is no reason to think that 2021 will be different. Here are some places to start:
Reviewing Your Investment Policy Statement
Most plans have investment policy statements nowadays, and many of them say that they will be reviewed annually. How many plan fiduciaries actually do that? Did you just adopt what your investment adviser provided verbatim without company fiduciary or legal review? A review should consider whether any of these are missing from your IPS:
A process for reviewing fees, unless you have a separate fee policy
A process for reviewing your QDIA selection
A process for reviewing target date funds, regardless of whether they are your plan’s QDIA
Standards for reviewing the performance of the advisers and other service providers hired to deal with the plan
The flexibility to keep a fund in a 401(k) plan’s menu if it appears performance will improve, such as if a new manager takes over
Adding these will help demonstrate a prudent fiduciary process, your best defense if decisions are challenged, and ensure that fiduciaries are not locked into decisions due to rigid mathematical formulas.
Setting Up an Effective Plan Committee
Appointing plan committees can protect the Board from liability exposure and committees are also a good way to improve plan administration and optimize investments. Committees aren’t fungible-How does yours stack up? Does your committee-
Have a Charter setting out its responsibilities and what it is not responsible for?
Consist of members prepared to devote the time needed to properly fulfill their responsibilities?
Have regular formal meetings?
Keep Minutes of its meetings that record the reasons for decisions?
Hire professional advisers if it lacks the expertise to perform a function well?
Get formal fiduciary training and legal updates on a regular basis?
Supervise the professionals it hires and the employees who actually do the work?
Do regular benchmarking and requests for proposals (rfps)?
If your plan doesn’t currently have a committee, consider these issues when setting one up.
Keeping Up with Compliance.
Qualified plans have disclosure and filing requirements that must be satisfied each year, and penalties can be assessed for failure to meet the applicable deadlines. In addition, as the law changes, required amendments must be timely adopted to preserve the plan’s favorable tax treatment. Do the plan’s fiduciaries-
Provide information to vendors and accountants early enough to file on time and include a completed audit (if required) with the Form 5500 filing?
Review the drafts of notices and other communications provided by vendors to ensure that they are understandable and accurate?
Keep a calendar of requirements and due dates so that nothing is forgotten?
Know when plan amendments are required to be adopted?
Timely sign all amendments after legal review?
Have good internal controls, which will be one of the first things the IRS looks for in an audit?
Do regular self-audits to identify problems before the IRS or DOL do?
Regularly update required bonding coverage as assets increase?
Correct any noncompliance identified in accordance with IRS and DOL correction procedures?
The most effective New Year’s resolution plan fiduciaries can make may be to go back to basics in 2021 and review these and other compliance issues. A review of the basics, ideally by partnering with your advisers and ERISA counsel, may more than pay for itself in saved penalties and audit costs and in improving the odds of winning any litigation filed by participants. If your plan hasn’t benchmarked fees or done an rfp in some time, or has never done a self-audit, those activities are a good way to start 2021 on the right note.