As important as a retirement benefit surely is to its participants, it is also a key part of the plan sponsor’s strategy for attracting and retaining a workforce. In addition, the tax advantages of having a plan are undeniable, providing tax-free growth for employees’ savings and also valuable deductions for the company.
However, sponsoring and maintaining a plan is a big step, involving not just a single act but actually a series of activities that must be performed regularly by the employer in order to fulfill its many fiduciary duties under the law. Plan contributions must be timely and accurate, benefits must be paid as dictated by the plan document, annual testing and reporting must be completed, investments must be monitored, and so forth.
Granted, the employer is assisted in its duties by expert service providers, such as the payroll company, the TPA, the fund custodian, and an investment advisor; but the glue that holds the plan together is the employer’s oversight and vigilance. As the saying goes, “The buck stops here,” at the employer’s desk. When a plan failure occurs, it is the employer’s responsibility to identify and correct it in order to protect the employees’ retirement savings as well as those lovely tax benefits.
One or two individuals shouldering all of the plan responsibilities by themselves may easily feel unprepared and overwhelmed. The general compliance risk is likely greater, too, when plan operations are the duty of just one or two people left to carry out the plan responsibilities by themselves. With no regular accountability or internal safeguards, it is all too easy for one HR person to forget to double check a payroll report, or for a single executive to put off responding to a TPA’s inquiry about the annual testing. And what happens when the sole person who knows the plan goes on vacation or leaves the job with no notice, taking their institutional memory with them?
A group, on the other hand, formed as a permanent, chartered plan committee, would provide a much more effective strategy for managing the challenges and responsibilities of plan oversight. Three to five people scheduled to meet once or twice per year can accomplish a lot—conferring with the plan investment adviser, discussing plan operations and design, managing outside vendor relationships, and most valuable of all, providing the crucial documentation of these fiduciary activities in their meeting minutes.
It’s human nature. Compared with an individual left to their own devices, having an active group in charge lends itself to greater plan compliance by imposing the discipline of formal meetings and by providing much-needed accountability for the employees who’ve got their hands on the wheels of the plan on a day-to-day basis.
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