You value your employees and want to ensure that they save for their retirement. Therefore, you decided to sponsor a defined contribution pension plan. You hope that your employees will appreciate the benefit and that it will contribute to improving their financial well-being and helping to boost their productivity.
However, you also picked up some legislated fiduciary responsibilities that must be managed adequately for this peace of mind to be real. In a nutshell, having fiduciary duties means that when it comes to managing your pension plan you must always act in the best interest of the plan members or you may face some liabilities.
There is more to acting in the best interest of the plan members than setting up the plan, remitting the contributions on time and ensuring that the regulatory filings are handled properly. These are the plan sponsor’s basic responsibilities as the plan’s manager. The plan sponsor’s fiduciary role involves setting clear objectives for the plan and then developing a strategy to meet these objectives.
The strategy is focused on identifying and mitigating the plan’s risks, as much as possible. It usually begins with the separation of the supervision and administration functions. The roles and responsibilities of all parties involved in the management of the pension plan must be clearly defined and documented. Each party must possess the right skillset required for their role and be held accountable for their actions or inactions. It is important to understand that some tasks may be delegated but the fiduciary responsibilities remain with you. Therefore, you must also monitor the performance of your service providers.
The key to good governance is to create and adopt a plan governance document and to keep detailed records of its continuous application.
Here are some sample questions that you should be able to answer:
- How many investment options are offered under your plan?
- What are the investment management fees? The investment management fees charged to the funds and their performance have a direct impact on the amount of retirement savings that the participants will accumulate.
- When was the pricing of the plan last reviewed? If you have not reviewed the pricing of your plan in the last 5 years, you are probably leaving some of your participants’ money on the table.
- How does the return of the various investment options compare to similar funds?
- What is the default investment option? The setting of the default investment will also have a direct impact on the amount that some participants will save.
- How often can the plan members review their investment elections?
- How long does it take for the contributions to be invested in the member accounts, once they have been deducted from their pay?
- When was the last round of employee information sessions? It is important that the participants understand the plan to fully appreciate it.
- How much are you paying your adviser? Is the commission set by your adviser in line with the services provided?
If you are unsure about the answers to these questions or suspect that the answer is not right, you need to review your governance practices to ensure that you meet your fiduciary obligations.
Still unsure about the management of your plan? We can help. Connect with us for a free assessment of your plan’s governance and pricing competitiveness.