Keeping a retirement plan humming along smoothly takes work—ideally, not too much work, particularly if sponsors keep a close eye on things, and have advisors and fiduciaries as part of their team to ensure that everything's kept on the up and up.
That said, there are always actions that sponsors must or should take to make sure that plans function the way they're supposed to and achieve the goals set for them.
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A white paper from Wells Fargo's benefits consulting group points out that investments, expenses, legal requirements, and analyses of plan performance, among other responsibilities, all fall under the purview of the sponsor to one degree or another.
At least once a year, the paper says, plan sponsors should be prepared to review their plans' "health, wealth and goals" in a "checkup" that looks at what works and what doesn't—as well as planning actions to be taken in the coming year.
Here are 10 actions the paper says should be done by plan sponsors on an annual basis—not just to identify any potential problems and head them off, but also to keep plans functioning at as high a level as possible.
1. Filling needs and meeting goals.
An annual review helps to ensure that your plan is still doing what it set out to do—prepare employees for retirement.
And in light of changing regulations and expectations, it can help to guide future changes in the right direction.
If priorities have shifted, you might find yourself eliminating some plan features and adding others—such as auto-enrollment, auto-escalation, or lifetime income options—so that your plan remains valuable to employees.
2. Service provider fee disclosure.
Wells Fargo reminds sponsors that covered service providers must disclose detailed information about their fees and which services are provided for those fees.
Plan sponsors must monitor expenses, and reviewing fee disclosures is essential to the process.
In addition, fee benchmarking studies are available from consultants so that you can get an idea of where your plan fits in on the fee scale and whether you're getting good value for the money.
You must also keep in mind that it's not necessarily all about the fees—it's about what you get in exchange for those fees, and how well the plan serves its participants.
3. Participant fee disclosure.
Participants and beneficiaries must also be advised about the fees the plan charges them for participant-directed investments.
They must be clearly explained and the rationale for choosing them as the best options should be presented.
Although they don't generally prepare the disclosures, the Department of Labor holds plan sponsors responsible for them. So you should make sure that fees are reasonable and disclosures are clearly written, contain all required information and are understandable by participants.
4. Plan administrative procedures and best practices.
Wells Fargo suggests that the creation of an administrative and best procedures manual can be the best way to ensure that you have a complete record of the "who, what, when, where, how and why of the administrative process."
Not only such information as services furnished by the plan's providers and plan document maintenance should be included in such a manual, but also decisions made on how the plan document is interpreted and how plan fiduciaries are vetted.
5. Plan document review.
The plan document must in compliance with all appropriate regulations, lest the tax-qualified status of the plan be in jeopardy.
An annual review can forestall the "time consuming and costly" process of correction via the Employee Plans Compliance Resolution System.
Working with the 401(k) service provider and legal counsel will help you to be sure that procedures follow the plan document, amendments have been adopted as required, and the summary plan description is current.
6. Required plan communications.
Wells Fargo points out that every plan is required by law to provide certain communications, such as safe harbor notices, fee disclosures, automatic enrollment notices, and summary annual reports and plan descriptions.
Not only do you need to be on top of which notices need to be provided, you should make sure their content is accurate and written in an understandable style.
Also, be aware of who is responsible for preparing each type of notice, how they're delivered, and that each type is provided to participants by the appropriate deadline.
7. Targeted plan communications.
As a means of boosting employee participation and understanding, many plans are turning to targeted communications.
Input from your plan provider should help you determine how participants are using the plan.
But in addition to focusing communications for specific groups of employees on how much they're saving, whether it's enough or whether they're choosing appropriate investments for their unique needs, you also need to consider how those communications are delivered.
Not all employees will want paper copies, just as not all employees will prefer to receive plan communications electronically via an app.
8. Plan fiduciaries.
Particularly in light of the Department of Labor's fiduciary rule, it is vital for plan sponsors to know and document everyone who is considered a fiduciary for their plans.
Function, not title, determines that—and, Wells Fargo reminds us, since each person acting as a fiduciary is potentially responsible for the actions of their cofiduciaries, they all must understand their fiduciary duties and document how they perform those duties.
9. Compliance review.
According to Wells Fargo, "A compliance review can help you identify issues and administrative gaps, including services that should be performed for the plan but are not currently done, changes in ownership or mergers and acquisitions, changes to the plan's controlled group status, the nondiscrimination tests required for the plan, and identifying who performs them."
Involving both your 401(k) provider and legal counsel as you answer questions about how the plan is administered and checking your answers against not only best practices but also the technical requirements of the plan will help you to make sure that everything is as it should be.
10. Legislative changes.
Whether you rely on your 401(k) provider to keep abreast of changes in legislation that affect retirement policies and programs, have a group or committee that tracks such data, or just review professional publications for articles about what's coming down the pike, Wells Fargo points out that you need to keep abreast of how changes in the law affect your particular plan.
And when you know about changes that are on the way, the onus is on you to make sure you discuss them with all appropriate providers—including legal counsel—to ensure that any required actions are taken.
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