Five Considerations For Plan Sponsors When Hiring An Advisor
As a retirement plan sponsor, one of your most important responsibilities is to choose the right plan advisor to help you maximize the effectiveness of your business’s retirement plan. Needless to say, this particular decision, because of the potential legal implications and government regulations associated with this type of plan, should be handled with extreme care and attention.
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A respectable advisor will understand the investment process and will correctly implement fiduciary standards. They must also have the best interests of your plan participants in mind and be able to manage your liability as a plan sponsor. Here are some other key considerations to keep in mind when choosing your plan advisor, or, for that matter, before making any decision with regard to your plan.
You Are A Fiduciary
Because, as a plan sponsor, you are responsible for managing and administering your plan’s assets, including choosing investment options or even choosing the firm that will make investment options on behalf of your plan. As such, you a fiduciary governed by the Employee Retirement Income Security Act (ERISA) and are held to a higher level of trust among your plan participants and are required to always act with their best interests in mind. This should always be in the forefront of your mind when making plan-related decisions.
Legal Responsibilities
As a fiduciary, you have numerous responsibilities to juggle. But, your primary focus must always be to operate your company’s retirement plan in a way that maximizes the value for your plan’s participants. This includes working to ensure that any fees associated with your plan are reasonable. When vetting advisors, consider their fee structure and whether their services, along with their fees, will ultimately increase the overall value awarded to your plan participants.
Be Mindful Of Conflicts Of Interest
ERISA fiduciaries, according to the Department of Labor, cannot engage in transactions on behalf of the plan in a way that benefits any parties that are related to the plan in some way. This includes other fiduciaries, service providers or even the plan sponsor. Again, you are responsible for managing your plan solely in the best interest of your participants and beneficiaries. So, for example, as a plan sponsor, you must not ask or require employees (plan participants) to pay for services for the purpose of receiving free or discounted plan services that would benefit the employer (plan sponsor).
Assume The Role Of “Expert” Or Find External Expertise
You didn’t go to school to be a professional fiduciary, and you likely didn’t receive any special training before landing the job, but in the eyes of the law, as a plan sponsor, you have assumed expertise. The thought is terrifying. That being said, the buck doesn’t have to stop with you. Actually, you are allowed (and encouraged) to seek advice from a qualified, independent expert. That being said, as the plan sponsor, you are expected to ensure that your advisors also abide by the same high fiduciary standards that govern your actions.
Personal Liability
Plan fiduciaries are held to the highest legal standards by the ERISA. Operating a business’s retirement plan poorly can result in a range of serious implications, not only for the plan, but from a personal standpoint. Fiduciaries can be held personally accountable to recover any losses to the plan or any profits from the improper use of the plan’s assets. Therefore, it’s absolutely critical for you to have a clear understanding of your fiduciary duties, particularly when it comes to choosing the right plan advisor for your plan’s needs. After all, you are ultimately responsible for their actions.
Choose an advisor based on factors that are independent of one another. And document your processes and analysis for future use. Additionally, if you have any questions about your responsibilities as a plan sponsor or hiring an advisor, email Rea & Associates and speak with a member of our retirement plan audit team.
By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)
Check out these articles to learn more about the role as a fiduciary and how to manage a business’s retirement plan.
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