Five steps to help strengthen retirement plan governance

As a plan sponsor, you balance a wide range of responsibilities managing your organization’s retirement plan and supporting employees’ financial well-being. These responsibilities include making plan design decisions, overseeing vendor relationships, monitoring investment options and more. Each is important, but meeting your fiduciary obligations may be among the most critical parts of the role.

Effective plan governance requires ongoing attention, clear processes, and thoughtful supervision. Supported by the strategic use of ERISA counsel, retirement plan consultants or auditors, fiduciaries can take practical steps to strengthen plan oversight. This article highlights five governance practices and related action steps that can help you manage your fiduciary responsibilities with greater confidence.

Although these practices are designed for ERISA-covered plans, non-ERISA plan fiduciaries can also follow them to help promote effective governance and strengthen administrative oversight.
 

Many retirement plan decisions require careful evaluation, and it’s important to have documentation and records that show how you made those decisions. Regular meetings, clear notes and supporting materials can help demonstrate that fiduciaries followed a thoughtful process and considered information relevant to the decision.

Action steps

• Schedule regular or ad hoc meetings to talk about, monitor and review retirement plan matters.

• Record key decisions and discussions from plan meetings.

• When making decisions affecting the plan, be sure to catalog any data analysis, reports or expert input that were part of the evaluation process.
   

Service providers play a key role in administering retirement plans, making periodic reviews an important part of a fiduciary’s responsibilities. Regular fee and service provider reviews can help you evaluate whether the plan receives appropriate value for the services provided. Evaluating costs, services and provider performance are key elements of prudent oversight.

Action steps

• Set meaningful benchmarks to evaluate your plan’s costs and services relative to comparable options.

• Conduct a comprehensive fee review before engaging a service provider. Depending on your plan, the review may include recordkeeping, managed accounts, advisory services, revenue sharing arrangements, annuities, per-participant versus asset-based pricing and other provider fees.

• Document why plan fees and service arrangements are reasonable based on the services, support and value provided.

• Track and periodically evaluate plan provider service levels, fees and performance over time to confirm they remain appropriate.

• Consider whether a benchmarking exercise, request for information or request for proposals is needed based on the plan’s circumstances, including changes in its size, participant needs, services, fees, technology or provider performance.

• Keep in mind that as a fiduciary, you’re required to know whether the total compensation paid to providers is reasonable for the services, support and value provided. But that doesn’t mean you’re required to have the least expensive plan.
   

Participants’ needs and market conditions change over time. Regular reviews can help determine whether investment options remain appropriate, aligned with plan objectives and are competitively positioned, considering factors such as fees, performance and participant needs.

Action steps

• Consider adopting and periodically reviewing an Investment Policy Statement that describes the process and criteria used to select, monitor and, when appropriate, replace plan investment options.

• Regularly review plan menu options for underperformance against relevant benchmarks and peer groups by monitoring key metrics such as performance, fees, risk, management, diversification and the role of each option in the plan’s lineup.

• Hold on to reports, benchmarking studies and expert recommendations supporting why investment options were selected, retained or replaced.

• Although certain responsibilities may be delegated such as the selection of an investment manager, the fiduciary generally is still responsible for the prudent selection and monitoring of the provider and for any responsibilities not delegated.
   

It’s important for service agreements to clearly reflect current responsibilities, expectations and service needs. Reviewing provider contracts can help clarify roles and responsibilities, identify potential gaps and confirm that key provisions and protections remain in place.

Action steps

• Review plan documents and service agreements to make sure fiduciary responsibilities are clearly assigned and understood.

• Confirm that service commitments, performance standards and reporting requirements are up to date and aligned with your plan’s needs.

• Understand what protections exist if a service provider does not fulfill its obligations, and work with legal counsel to add language or protection if needed.

• Prepare in advance for more complex situations, such as switching recordkeepers, by ensuring responsibilities, timelines, participant communications and tracking of asset transfers are clearly defined.
   

Cybersecurity is more than an IT issue. It involves protecting plan data, assets and participant information. As retirement plans increasingly rely on digital systems, cybersecurity is a core part of plan sponsors’ ongoing oversight responsibilities.

Action steps

• Adopt formal, well-documented cybersecurity policies. You can look to best practices released by the Department of Labor to help guide you.

• Establish and periodically review an appropriate process for managing cyber threats affecting the plan, including evaluating the cybersecurity practices of recordkeepers and other providers that maintain plan systems, assets or participant information.

• Provide participants with periodic online security education to help protect their accounts.

• Review your digital security program annually to keep up with evolving threats.
   

Fiduciary governance is an ongoing commitment, and the steps needed to support a prudent process may change as regulations, plan needs, data privacy concerns and industry practices evolve. By taking practical steps to manage your responsibilities and working with third-party experts when needed, you can strengthen plan oversight, better support participants and help improve plan outcomes.