THE BEST PRACTICES
OF A RETIREMENT
PLAN FIDUCIARY
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INTRODUCTION
WHAT DOES BEING FIDUCIARY MEAN?
WHAT IF A FIDUCIARY DOESN’T PERFORM HIS/HER DUTIES?
BEST PRACTICES FOR BEING A FIDUCIARY
DOWNLOAD HELPFUL MATERIALS
INTRODUCTION
For those in the retirement plan industry, the Employee Retirement Income Security Act (ERISA) imposes important obligations and high standards of conduct on those who establish and manage certain types of tax-qualified defined contribution plans such as a 401(k) plan.
These rules are designed to ensure that fiduciaries, individuals or entities with authority to manage retirement plans and plan assets act in the best interests of plan participants (and their beneficia-ries) and invest plan assets prudently. Obeying ERISA rules can set up plan sponsors and their plans for success and most people in the industry pay close attention to them.
In the following sections, you will learn more about the role and responsibilities of a fiduciary as well as certain best practices to ensure you are on course for compliance with ERISA’s fiduciary mandates. Additionally, you will gain access to Alger’s downloadable guide, planner and resources for support.
Under ERISA, every plan must have at least one “named fiduciary.” Typically, this is the plan sponsor.
Most plan documents also name the plan sponsor as the ERISA plan administrator, sometimes referred to as an ERISA 3(16) fiduciary. This fiduciary has discretion over how the plan is operated and is often responsible for hiring service providers to help administer the plan and ensure that plan notices and disclosures are properly delivered.
WHAT DOES BEING
A FIDUCIARY MEAN?
QUIZ
The plan sponsor can appoint others to the fiduciary role and transfer all of their fiduciary responsibilities.
TRUE
FALSE
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Correct!
Click True or False
The plan sponsor can appoint and transfer some responsibilities but can never fully transfer 100% of their fiduciary responsibilities.
Click each underlined section below to learn more about each responsibility.
In most defined contribution retirement plans, one of the responsibilities of fiduciaries involves se-lecting and monitoring the plan’s investment options. Most plan sponsors engage investment professionals (like an investment consultant/advisor) to help select and monitor the menu of investments.
Some financial advisors will assume fiduciary responsibilities as either an ERISA 3(21) investment advisor or ERISA 3(38) investment manager.
A bank, insurance company or registered investment advisor (RIA) may be engaged as an ERISA 3(38) investment manager. ERISA 3(38) investment managers may assume full discretionary responsibility for selecting and monitoring plan investments and relieve the plan sponsor of fiduciary liability for the investments selected, subject to properly monitoring the ERISA 3(38) investment manager.
A financial advisor may serve as an ERISA 3(21) investment advisor. An ERISA 3(21) investment advisor shares fiduciary responsibility with the plan sponsor and recommends investments to include in the plan menu, but typically leaves the final decision regarding the investment menu to the plan sponsor. Investment advisors are sometimes referred to as nondiscretionary fiduciaries because the plan sponsor retains ultimate discretion and control over plan investments.
Procedural Prudence Is Key for Satisfying
Fiduciary Responsibilities Mandated by ERISA
Setting
Objectives
Developing a written due diligence process for selecting and monitoring investments
Consistently
following
that process
Keeping records of due diligence activities
WHAT IF A FIDUCIARY
DOESN’T PERFORM
HIS/HER DUTIES?
If a fiduciary does not follow the fiduciary standards of conduct, ERISA provides enforcement mechanisms.
Click the options below to learn about the
two main enforcements.
Law Enforcement Mechanisms
Department of Labor
Participants & Other Fiduciaries
Authority to enforce the rules through civil and criminal actions
Right to initiate lawsuit
to correct fiduciary wrongdoing
To protect the plan from fiduciary wrongdoing, each fiduciary and any other individual who handles plan assets must be bonded. Some fiduciaries also carry fiduciary insurance to protect against claims that they breached their fiduciary responsibilities.
In addition to understanding the role of a fiduciary, building a support team of service providers and setting up a prudent decision-making process with checks and balances are key to managing fiduciary compliance.
DOWNLOAD HELPFUL MATERIALS
Below are additional resources that you may find useful:
• Download a PDF-friendly copy of all of the materials covered above
• Download our recommended Retirement Plan Educational Planner, which is useful for meeting the
unique needs of each retirement plan sponsor and building a fiduciary education strategy
• Have questions? Need more information? We’re here to help. Contact us at retirement@alger.com or
visit us at www.alger.com/retirement.
The list of fiduciary duties employers take on
when they adopt a retirement plan can seem daunting. Fortunately, there are steps they can take to set themselves on course for compliance with
ERISA’s fiduciary mandates.
THE BEST PRACTICES
FOR BEING A FIDUCIARY
Click the numbers on each lightbulb to discover the five best practices for being a fiduciary.
IDENTIFY PLAN
FIDUCIARIES AND
SERVICE PROVIDERS
EDUCATE PLAN FIDUCIARIES ABOUT THEIR RESPONSIBILITIES
ADOPT PRUDENT
POLICIES AND
PROCEDURES
CAREFULLY MONITOR
PLAN FEES
MAINTAIN
PLAN RECORDS
Under ERISA, most plan sponsors take on two sets of responsibilities.
A named fiduciary can appoint others to share the fiduciary role.
• Named Fiduciary – overall responsibility for the plan,
including overseeing plan investments
• Plan Administrator – discretion over how the plan is
operated
Plan Committee or Business Management Team
• Overall plan management
• Investment management
Financial Advisor
• Fiduciary advice to help build and monitor the plan’s
investment alternatives
• Provide information and education, without making
fiduciary recommendation
Third Party Administrators & Recordkeeper
• Operational and compliance support
• Typically no discretion over how the plan is administered
and not considered ERISA fiduciaries
IDENTIFY PLAN
FIDUCIARIES
AND SERVICE PROVIDERS
1
Service agreements should reflect whether service providers are acting as ERISA fiduciaries or as non-fiduciaries.
Once fiduciaries have been identified, it is critical that each fiduciary understands his/her role.
Most new plan sponsors or newly appointed fiduciaries would benefit from foundational education.
EDUCATE PLAN
FIDUCIARIES
ABOUT THEIR
RESPONSIBILITIES
2
Service agreements should reflect whether service providers are acting as ERISA fiduciaries or as non-fiduciaries.
Fiduciary Education Topics
• Business objectives for establishing the plan
• Responsibilities of a plan fiduciary
• Details about plan fees
• Service provider fee disclosure requirements
• Review of the plan document
• Critical compliance deadlines
• Nondiscrimination testing basics
• Fidelity bond requirements
Fiduciaries should consider adopting policies and procedures for all critical fiduciary functions.
• A named fiduciary can appoint others to share the
fiduciary role but still retains some fiduciary
responsibilities.
• Annual reviews with the plan’s financial advisor and other
service providers to review current practices will help
assess how well policies were followed and identify any
necessary adjustments.
• Identifying and addressing a problem early can often
prevent it from growing into a crisis.
• Written policies will help guide individuals and committees
to consistently monitor important plan activity and
identify any concerns that should be addressed.
ADOPT PRUDENT POLICIES AND PROCEDURES FOR MANAGING FIDUCIARY RESPONSIBILITIES
3
Sample Policy Issues
• Corrections: addressing any plan errors or employee concerns that arise
• Form 5500: reviewing the Form 5500 prepared by the service provider and filing it on time
• Transactions: authorizing distributions and loans, following the terms of the plan document
• Employee communications: making certain plan fiduciaries or service providers deliver all
employee notices and disclosures within the time frames required by the rules
• Reports: promptly reviewing all plan reports and other communications sent by service
providers
• Plan data: providing timely, accurate and complete census information and payroll data to the
plan’s service providers and protecting confidential information relating to the plan and its
participants and beneficiaries
• Timely deposits: making timely deposits of employee contributions, loan repayments and
employer contributions
Putting a fee monitoring process in place will help plan sponsors give plan fees the attention they need today—and in future years. A fiduciary best practice is to work with a financial advisor or consultant to build a fee management process.
Plan fiduciaries have a duty to make certain that fees paid from plan assets are necessary and reasonable. To fulfill this responsibility, plan sponsors must:
• Collect and analyze fee disclosures provided by service providers
• Carefully monitor all plan fees, including investment fees
In recent years, there have been a growing number of lawsuits initiated by retirement plan participants alleging that plan fiduciaries breached their fiduciary duty by paying excessive fees for services or investments. Plan fiduciaries are not required to choose the lowest cost service providers or least expensive investments; however, the fees must be “reasonable.” Plan sponsors have a fiduciary responsibility to weigh the value of the services received and the benefit to the plan and the participants against the cost for those services when evaluating which investments and service providers are the best fit for the plan.
In recent years, there have been a growing number of lawsuits initiated by retirement plan participants alleging that plan fiduciaries breached their fiduciary duty by paying excessive fees for services or investments. Plan fiduciaries are not required to choose the lowest cost service providers or least expensive investments, however, the fees must be “reasonable.” Plan sponsors have a fiduciary responsibility to weigh the value of the services received and the benefit to the plan and the participants against the cost for those services when evaluating which investments and service providers are the best fit for the plan.
CAREFULLY
MONITOR
PLAN FEES
4
• Monitor litigation and regulatory enforcement efforts
related to plan fees
• Build a schedule to review administrative and investment
fees (e.g., annually)
• Benchmark fees
• Collect fee disclosures in accordance with the DOL’s service provider
fee disclosure requirements
Building a Fee Managing Process
Another best practice is to Think Further about plan records.
Maintaining contemporaneous written records documenting compliance with the plan’s written policies and procedures and other fiduciary activity is instrumental in demonstrating that fiduciaries’ actions were prudent and in the best interest of plan participants.
MAINTAIN PLAN RECORDS
5
Documentation Examples
• Minutes for investment performance reviews and supporting documentation
• Dates, topics and attendees for education provided to fiduciaries
• Meeting minutes for service provider performance discussions and fee benchmarking
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of September 2021. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.
Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.
This document contains a general, high level summary of certain considerations applicable to qualified retirement plans. This summary does not purport to be a complete description of all the considerations applicable to a plan, plan sponsor, fiduciary or participant and it should not be considered to be guidance of any kind regarding a specific plan or situation and should not be re-lied upon as such. The summary is based upon general principles in the Internal Revenue Code of 1986, as amended (the “Code”), the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as well as certain guidance issued under the Code and ERISA that may be applicable, all as currently in effect at the time that this summary was drafted, and all of which are subject to change or to differing interpretations, possibly retroactively, which could affect the continuing validity of this summary. There should be no anticipation that this summary has been, or will be, up-dated for any developments in the law or interpretation.
Tax and ERISA matters are very complicated and the consequences to plans, plan sponsors, fiduciaries and participants will depend on the facts of a particular situation. We encourage retirement plan sponsors, fiduciaries and participants to consult their own advisors regarding these matters, including applicable federal, state, local and foreign laws and the effect of any possible changes in the law.
Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / 800.992.3863 / www.alger.com
INTRODUCTION
WHAT DOES BEING FIDUCIARY MEAN?
WHAT IF A FIDUCIARY DOESN’T
PERFORM HIS/HER DUTIES?
BEST PRACTICES FOR BEING A FIDUCIARY
DOWNLOAD HELPFUL MATERIALS
Module Menu
For those in the retirement plan industry, the Employee Retirement Income Security Act (ERISA) imposes important obligations and high standards of conduct on those who establish and manage certain types of tax-qualified defined contribution plans such as a 401(k) plan.
These rules are designed to ensure that fiduciaries, individuals or entities with authority to manage retirement plans and plan assets act in the best interests of plan participants (and their beneficia-ries) and invest plan assets prudently. Obeying ERISA rules can set up plan sponsors and their plans for success and most people in the industry pay close attention to them.
Service agreements should reflect whether service providers are acting as ERISA fiduciaries or as non-fiduciaries.