Plan Fiduciaries Responsibilities
Plan sponsors of a 401(k) Plan are considered fiduciaries to the Plan which means they are responsible for what happens within the plan and that all actions taken are in the best interest of the participants. There are penalties that can be levied against Plan Sponsors in the case of negligence. One great control that a Plan Sponsor can put in place to help with plan governance and meeting their fiduciary responsibility is to establish an oversight committee. An oversight committee can also aid in a response in the case of litigation against the Plan.
So, who should be included on this committee? We recommend the Plan Trustee(s) and Plan Administrator(s) be included. Also, representatives from Human Resources, Benefits, Payroll, Legal, and Finance. You should consider an employee representative(s) to help guide the committee on actions that would be beneficial to the employee population. The members should be invested in the strength of the policies and procedures surrounding the Plan and have some knowledge regarding 401(k) Plans. A member with knowledge of investment types and the risks associated with those types would be a great addition to the group.
What types of agenda items should the committee consider? One of the first areas to review is investment performance and diversity. How are the current investments performing? Should any be replaced? Have changes been made to the investment managers for any of the investments? If you have a dedicated investment advisor (which is highly recommended), an individual from the investment firm should be able to provide a document to help guide these discussions and provide valuable insight into the investment performance compared to relative benchmarks. Along with the investment performance, we also recommend the committee review the fee structure involved with the Plan. The investment advisor may be able to help this evaluation as often Plan fees are “hidden” in investment returns.
We recommend the committee consider reviewing provider performance. Have there been problems with the TPA or recordkeeper that works with the Plan? Are there unresolved issues? Consider reviewing the performance regularly and don’t be afraid to make changes if issues remain unresolved or are not corrected timely.
We also highly recommend the Plan review controls, transaction levels, and overall usage of the Plan. The providers if they are large providers can provide something called a SOC report. This report can help provide information on the controls at the provider. We also recommend the group considers conducting a risk assessment for the Plan. Consider what could go wrong in Plan administration. There should be controls in place to prevent or detect these items.
The committee should be a formal committee with set committee members. They should meet regularly (quarterly or more often if possible). They should have agendas and regular formal discussion items. Notes should be taken of actions that are required or any follow-up items. Your auditor and/or regulatory bodies will be looking for notes of these meetings.
We strongly encourage each Plan to have an oversight committee. It is a best practice for benefit plans and helps ensure plan administration is as strong as possible. Even if the committee is small and only meets once or twice a year, it still can provide a strong overall control for a well-managed benefit plan.
At Summit CPA we specialize in retirement plan audits. If you would like to discuss our audit process in more detail or need an audit contact our office at (866) 497-9761 to schedule an appointment. We can help you navigate the world of the 401(k) audit as proficiently as possible. We also offer off-site assistance and flat-fee pricing so there are no surprises when the job is complete.