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Resolving to Meet Fiduciary Duties

Fiduciary Rules and Practices

The confetti has been swept from Times Square and the bubbly bottles are in the recycling, and the nitty-gritty of applying those new year’s resolutions has begun. A recent blog entry has some suggestions for resolutions to follow in order to better fulfill fiduciary duties.

In “6 New Year’s Resolutions to Avoid Fiduciary Frustration,” a recent blog post by ERISA attorney Ary Rosenbaum, offers some suggestions regarding how to better stay within the rules and avoid trouble. “New Year’s resolutions typically don’t stick, but plan sponsors should double their efforts, or it could cost them — dearly,” he warns. Fiduciaries need to remember that they are “responsible for the retirement plan assets of their employees,” Rosenbaum adds.

Review plan fees. Fee disclosures are required under regulations implemented in 2012, Rosenbaum notes. But he says that he has found that receiving them doesn’t necessarily translate to their being used — or even read. “The problem I find with fee disclosure now is that most plan sponsors take their disclosure forms and either file it away or throw it out,” he writes. That is a mistake, he suggests, noting that the Department of Labor (DOL) often is interested in them and how they have been employed. “Reviewing plan fees is a good habit; like flossing it’s seen as preventative care,” says Rosenbaum.

Review plan providers. Reviewing fees is not enough, Rosenbaum argues — plan providers’ work also should be reviewed. “Too often, mistakes by providers are discovered during a DOL or IRS audit, or when plan providers are changed,” he notes. Further, he warns, “Discovering problems and errors later mean they will cost more.”

Review salary deferral deposits. Rosenbaum calls late deposit of deferrals from participants’ salaries “one of the most frequent yet avoidable 401(k) mistakes,” a phenomenon he blames on ignorance of the fact that the DOL considers the deadline for such deposits is that they be done as soon as possible. “If a plan sponsor can reasonably segregate salary deferrals within three days and does so on a regular basis, then one week or several weeks is considered late,” Rosenbaum cautions. He suggests review of the payroll cycle and the speed in which salary deferrals deposits are made.

Review compensation. It is common for there to be errors in understanding how compensation relates to the terms and administration of a retirement plan, Rosenbaum says. For instance, he observes, “Too often, a plan will not recognize a form of compensation (such as a bonus or paid time off) for purposes of making employer contributions, even though the plan document says they should.” And not following the plan document, Rosenbaum warns, “is a major compliance error” that can result in owing a late employer contribution. He suggests reviewing compensation and what the plan document says about it in order to ensure consistency.

Review the employee census. It is a good idea to review the employee population against eligibility requirements and rules, Rosenbaum suggests. He notes that allowing employees to participate too early or too late are both problems; the former can require removal of deferrals that had been added too early, while the latter can result in having to make corrective contributions.

Review active plan participation.  There is a difference between being a plan participant and being an active participant, Rosenbaum says. He notes that it is common for only employees who actively defer to be considered participants; however, he says, “Actually, an employee who meets the eligibility requirements and entry date is considered a participant, even if they never defer.” This distinction matters, he says, because whether participants are active is “an important metric” that shows how well used and appreciated the plan is as an employee benefit. Rosenbaum argues that plans often are offered as a means to recruit and retain employees, and such information may indicate how useful an employer’s plan is as such a tool. “Reviewing active plan participation is a must,” he says.