Retirement plan fiduciaries play an important role in plan management, but they also face risks along with those responsibilities.
Mitigating those risks requires constant due diligence, proper documentation of all processes and adherence to basic conduct standards, as fiduciaries who do not follow these standards may be held personally liable for losses to the plan. They may also have to restore any profits made through improper use of plan assets.
“Ongoing due diligence, prudent processes, documentation and consistency are fiduciary best practices and will mitigate any potential areas of risk,” says Stephanie M. Spaccarelli, vice president and regional managing director at Fifth Third Bank.
Smart Business spoke with Spaccarelli about the responsibilities of fiduciaries and how to create good relationships among fiduciaries, plan providers and plan participants.
Who is considered a fiduciary?
A fiduciary is any person who exercises discretionary authority or control over the administration or management of an employee benefit plan or its assets.
The Employee Retirement Income Security Act requires that every employee benefit plan have at least one named fiduciary so that participants know who is responsible for the operation of the plan. The named fiduciary can be identified by title or by name, and could be the employer or an administrative committee appointed by the board of directors. The employer as a named fiduciary may hire outside professionals to manage some of these responsibilities.
What key things should someone be aware of when taking on fiduciary responsibilities?
Fiduciaries should be concerned about:
- Due diligence in the selection of service providers and/or consultants
- Fee and expense structures
- Operational and compliance procedures
These responsibilities include acting solely in the interest of plan participants and their beneficiaries.
Fiduciaries must carry out their duties prudently, follow the legal plan documents, take responsibility for diversifying their plan assets and pay only reasonable expenses.
What risks does a fiduciary face, and how can that person mitigate those risks?
One of the biggest areas of risk is potential fiduciary liability. Most individuals who are plan fiduciaries do not realize that they can be held liable for losses to the plan.
The best way to demonstrate that those responsibilities have been carried out is by properly documenting processes. It’s important to conduct ongoing due diligence that ensures continuous monitoring, evaluation of administrative fees and the overall effectiveness of your plan in providing retirement benefits.
How can a fiduciary create strong relationships with plan providers?
Designing an effective retirement plan can be a daunting task. Plan sponsors are often confronted with complicated rules, an overwhelming array of choices, and the requirement to evaluate and understand plan costs.
Employers with plans of all sizes need someone who can offer objective knowledge and support to help make informed decisions on how to structure a competitive, cost-effective retirement plan.
A good partner should help minimize fiduciary burdens and liability that the plan sponsor may incur, as named fiduciary, by using a documented process for reviewing asset options. The partner should also use innovative approaches to plan design, recordkeeping and administration.
In addition, partners can help when new laws and legislation are enacted, which can have a widespread impact on a plan and its participants. Fiduciaries need to ensure that they are working with a person who can help them make educated, rational decisions in response to these changes.
How can a plan sponsor, as named fiduciary, communicate with plan participants and create relationships with them?
Reaching out to the employees participating in the plan is not always easy, and a plan sponsor needs help so that employees may achieve their retirement dreams. The employer should work to develop and implement a comprehensive education and communication plan. This education program should offer dynamic and engaging content in the form and time frame that the employees desire.
A fiduciary should also provide participants with tools to help achieve retirement readiness by offering options to help build their portfolios and prepare for the future. Plan participants often lack the knowledge and may fail to proactively manage their accounts. A solution endorsed by the recent Pension Protection Act is the utilization of a managed account solution.
By uniquely blending these approaches with personalized plan data and leading industry knowledge, a managed account program can create risk-controlled, competently designed retirement solutions, which can help optimize plan outcomes for both the plan sponsors and plan participants.
Stephanie M. Spaccarelli is vice president and regional managing director at Fifth Third Bank. Reach her at (513) 534-0696 or Stephanie.Spaccarelli@53.com.