Who approves beneficiary designation forms? Enrollment materials? What about adjustments to employer’s discretionary contribution? Ever notice how many “routine decisions” are being made for the 401k plan? How confident are you that all decisions follow the protocols as detailed in the retirement plan?
What Does the Plan Say?
Legal experts advise retirement plan fiduciaries to conduct a “401(k) Compliance Check.” Why? You need to “ensure that the people who are making the decisions for your 401(k) plan are actually authorized to do so by your plan documents.” Failure to align to the protocols in the plan document creates fiduciary risks. As JD Supra explains: “If you read through your formal 401(k) plan document, you’d probably be shocked at the number times the plan requires someone to make a determination, authorization or approval under the plan. Each one of those instances is a potential ground for a lawsuit or audit inquiry if the person who is authorized under the plan to make that decision is not, in fact, the person who is actually making that decision.”
Lawsuit? Investigation? Yes, the arena of ERISA litigation and investigation continues to be hot, with smaller new cases leveraging the precedents set by the big cases over the last few years. Let the national experts at Colonial Surety help you mitigate the risks with affordable fiduciary liability insurance. Our annual premiums are less than you’ll spend for just one hour with an ERISA lawyer if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, Fiduciary Liability Insurance covers defense costs and penalty limits up to $1,000,000 in the event of a lawsuit. Uniquely, Colonial even locks in multi-year rates, offers installation payments—and even includes $50,000 of Cyber Liability Insurance as a value add.
Compliance Check: Decision Making
An important best practice for retirement plan fiduciaries is reviewing the plan document for a clear understanding of who is authorized to decide what. Then, review who is actually making decisions in real time. If you discover disconnects, take action! As Kathleen Dreyfus Bardunias and Leigh Riley of Foley & Lardner LLP further explain:
Your 401(k) plan document is always the starting point to determine who is authorized to make plan decisions. The trick is to make sure that you identify the right place in the plan to find the answer for the particular decision at issue. For example, if the plan needs to be amended, then there should be an amendment section that describes who has amendment authority. If the decision relates to the amount of the employer’s discretionary contribution, then there is a different section in the plan for determining contributions. And, when it comes to approving forms for use under the plan (e.g., beneficiary designations or enrollment materials), yet a different section of the plan addresses who has authority over that.
Once you’ve surveyed all of your various plan documents to determine who is supposed to be making decisions (and in what circumstances), then identify who is actually making those decisions in practice and look for discrepancies between the two…It is quite common for there to be a disconnect, often because you cannot locate the “paper trail” to demonstrate proper delegations of authority—your plan says X makes the decision, while in reality Y is making that decision, and you cannot find anything in writing from X delegating that authority to Y.
If you find yourself in that common situation where you have a disconnect between your documents and what is happening in practice, it’s fixable in one of two ways—change your decision-making practices to match your documents, or change your documents to match your decision-making practices.
Decision Making Fatigue?
With so many protocols to follow and long lists of regulations and responsibilities to attend to, of course plan sponsors are susceptible to decision-making fatigue. Let Colonial Surety help you streamline for efficiency. Continuous coverage at locked in rates from one provider is a sensible decision. Just select an affordable, package and receive our unique three point coverage solution for plan sponsors:
- The ERISA bond required to protect the assets of the retirement plan from theft.
- Fiduciary Liability Recovery to protect you and your assets from personal liability.
- Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.
Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. With a Trustscore of 4.8, we help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.