Experts caution small business owners against thinking they can save money by administering a company sponsored retirement plan without expert help. Similarly, companies who have long sponsored retirement plans might be overly complacent and not up to speed on current issues. Here are examples of mistakes to avoid.
That’s how experts describe the responsibilities of plan sponsors, especially those who think they can handle administration of the plan on their own. Even those who have been sponsoring a plan for a while can get themselves in trouble if they don’t realize they are behind on the times and in over their heads. While tax breaks and competitive benefits packages for attracting employees inspire many businesses to take on retirement plan sponsorship, once the decision is made to do so, having expert help and keeping current is imperative. Anthony Martin, Founder and CEO of Choice Mutual puts it this way:
Retirement financing is a complex legal process that can be incredibly time-consuming for the person organizing it. While many smaller businesses may look to save money by attempting to run the plan themselves, many find that it quickly becomes an overwhelming task in conjunction with all of their other duties. Hiring a retirement plan specialist to help run your employee’s 401k plan is the best way to ensure that your employee’s financial futures are being taken care of properly. It will also save you and your team a lot of time and effort that could better be spent towards the other daily operations at your business.
Given the complexities and high standards of ERISA law, as well as the rapid pace of change and disruption in recent years, new plan sponsors are not the only ones liable to make mistakes. In fact, as fiduciary expert Christopher Carosa notes, plan sponsors who have gotten complacent “may wake up one day to find out they’ve got a dinosaur on their hands.” Some experts urge that the times at hand might even make a major plan redesign wise:
“Particularly in the current labor market, plan sponsors need to reimagine their retirement plan design, including the plan provisions, investment lineup strategy, and service providers,” says Matthew Eickman, National Retirement Practice Leader, Qualified Plan Advisors in Omaha, Nebraska. “The biggest mistake is the failure to do so, instead opting to incrementally tweak the status quo. We’ve encountered a once-in-a-century global pandemic, ridiculously low unemployment, and high inflation. Tweaking won’t cut it. It’s time to ask, ‘if we were starting our plan today, how would we build it?’”
Understanding The Bottom Line
Whether starting a plan or changing a plan, of course plan sponsors have the ultimate responsibility for ensuring that it is in compliance with the high standards of ERISA law, which includes keeping up with the “guidance” frequently issued (and adjusted) by the Department of Labor. While contracting with consultants and advisors is very helpful, experts caution plan sponsors to remember:“at the end of the day, the responsibility and liability…for decisions remain on their shoulders.” In fact, many plan sponsors get tripped up over the responsibilities and obligations of those they hire—versus their own. Jeff Coons, Chief Risk Officer at High Probability Advisors offers this advice: “The mistake we see most often is a plan sponsor thinking their recordkeeper or broker advisor is responsible for picking the funds on their investment menu when the reality is the plan sponsor is the fiduciary responsible for that decision. To avoid this mistaken belief, plan sponsors should ask advisors and other providers to put their responsibilities and fiduciary status in writing and confirm that status regularly.”
The IRS also reminds plan sponsors that selecting and monitoring individuals or companies to manage an employer sponsored retirement are important examples of the fiduciary responsibilities associated with plan sponsorship. Therefore, it’s critical to handle these actions with the utmost diligence and to document how providers and advisors are selected. Depending on the arrangements, these contractees likely have fiduciary obligations of their own, but plan sponsors retain their own status as fiduciaries. That’s why Colonial Surety offers an affordable Fiduciary and Cyber Liability insurance Package that arms plan sponsors with:
- Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties.
- Defense against lawsuits and regulatory actions related to a cyber breach.
- Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.
The annual cost of our Fiduciary with Cyber Pack is less than the fee for one hour of expert legal defense if a lawsuit or regulatory challenge strikes you and your business. Let’s get you covered, in minutes, today: Plan Sponsor Protection Package.
Cover the Basics: ERISA Bond Renewal
The DOL mandates ERISA fidelity bonds to protect the assets of the retirement plan from theft. Unfortunately, failure to have an up to date ERISA bond is a common mistake among plan sponsors—one that is know to trigger government audits and investigations. Make sure your ERISA Bond adequately covers your plan. You don’t have to figure it out on your own—Colonial Surety is here to help: uniquely, we even include retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for cost-saving multi-year coverage, ensuring the ERISA bond remains Department of Labor compliant for the life of its term.
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.