It was discouraging to see the article in Forbes last week (August 16, 2011) titled, “Why 401(k) plans are doomed from the start.” From an auditor’s point of view, looking at hundreds of 401(k) plans, I think a better title would be, “The challenges facing 401(k) plans.” While responsibility lies in both courts, the participant and the sponsor, I will address a few of the issues that are put upon the sponsor to support my readers in optimal plan management.
- Document the reasons for plan investment decisions. Financial brokers can bring you information that is helpful in making investment decisions. That doesn’t mean that you are relying on them as fiduciaries or that there is anything improper about the relationship. However, you need to protect yourself with having a range of resources and document all plan decisions. Preferably, have a plan committee that includes non-biased fiduciaries.
- Define your plan fiduciaries. Make sure that your plan document includes the credentials and relationships of all of the fiduciaries with input into your plan. See my previous post, Trustees vs. Fiduciaries, for more information.
- Understand the relationship between plan costs and associated fees. As we have said before, much scrutiny is applied to plan fees by both disgruntled participants and the DOL. Be fully aware of the fees you pay and document committee decisions.
- Keep your Investment Policy Statement up to date. The issues discussed above relate to your current Investment Policy Statement. Your Investment Policy Statement provides validation for the integrity of your decisions. It is also an important element to demonstrate compliance to ERISA and DOL rules and regulations.
- Use your audit as a tool to improve your plan. Companies with 100 or more participants are required by law to have an annual audit. Your auditor can be a valuable resource for suggestions to improve operations and protect yourself from liability.