Who Is Ultimately Responsible For An Employer’s Retirement Plan?
The employer is ultimately responsible for the retirement plan, despite hiring third-party administrators or investment advisors. According to IRS and Department of Labor guidelines, the employer is accountable for every aspect of the plan. While employers can outsource duties, they cannot outsource the responsibility. This means that if there are issues with plan operations or compliance, the government will hold the employer accountable, not the service providers.
What Are The Primary Duties Of A Company As A Plan Sponsor?
A company, as a plan sponsor, has several key responsibilities categorized into three main areas. First, the plan document must comply with all requirements under the Internal Revenue Code. Second, the plan must be administered according to the plan document, which involves coordinating all plan activities with third-party administrators and payroll companies. Lastly, the employer must file an annual report, known as Form 5500, with the Department of Labor, which shares it with the IRS. This report is signed under penalty of perjury by the employer.
What Service Providers Are Essential For Running A Retirement Plan?
In addition to a third-party administrator, there are three primary service providers needed. The plan’s investment advisor, a registered investment advisor (RIA), selects the list of funds available for participants to invest in and often provides employee education. The plan record keeper, or custodian, holds the plan’s assets in trust and manages all financial transactions, including receipts, earnings, losses, and distributions. Additionally, some employers may contract with an external trustee to act as the plan’s trustee, though the employer remains ultimately responsible.
How Much Do Retirement Plan Services Cost, And Who Pays For Them?
The costs for retirement plan services can be paid by either the employer or the plan itself. Prices vary widely, but for small plans under $10 million in assets, third-party administrator services can range from $1,800 to $3,500 annually. These costs are typically lower than hiring a full-time employee to manage the plan. However, it’s essential that any fees charged to the plan or participants are reasonable to ensure compliance and fair treatment.
How Can An Employer Ensure That The Fees For Plan Services Are Reasonable?
Employers can ensure fees are reasonable by comparing the services and costs of different providers. There’s no requirement for the lowest possible fees, but they must be reasonable. Employers should periodically benchmark and negotiate fees, especially as the plan grows. Investment advisors and record keepers often charge a percentage of assets under management, usually around 1%. Employers should be proactive in negotiating these rates to avoid unnecessarily high fees, which can lead to litigation.
What Should An Employer Document When Reviewing Service Providers And Their Fees?
Employers should maintain documentation of the fee disclosures provided by service providers, which are required when services begin and annually thereafter. It’s crucial to understand these documents and compare costs against the services received. Employers should also document their process of reviewing and negotiating fees, whether through committee meeting minutes, memos, or formal benchmarking reports. This documentation serves as evidence of due diligence in managing plan fees.
Why Is Having A Plan Committee Beneficial For Managing Retirement Plans?
A plan committee offers multiple perspectives and accountability in managing retirement plans. It can include members from different departments, such as finance and human resources, providing a well-rounded view on fees and employee feedback. The committee helps ensure that decisions are reasonable and justified, offering a platform for discussing and verifying the appropriateness of fees and services. This collaborative approach supports better governance and compliance.