What are you forgetting?

Reviewing commonly overlooked fiduciary duties

Although retirement plan fiduciaries take their jobs seriously, it can be hard to cover all the bases. That’s understandable, considering the broad scope of fiduciary responsibility as well as the dynamic nature of the retirement plan designs, investment management and legal interpretations of fiduciary duty. Some common pitfalls include failing to identify the plan’s fiduciaries, insufficiently training fiduciaries and spending too much time on inappropriate investments.

Don't forget!

Knowing your fiduciaries

Do you know the identities of all your plan fiduciaries? Fiduciaries should know who else carries the responsibilities. Having fiduciary status — and the liability associated with the role — is a powerful motivator to pay careful attention to the management of the retirement plan. However, the scope of your fiduciary duty varies according to the role taken. Let’s take a closer look at the types of plan fiduciaries:

Named fiduciaries. ERISA requires the existence of named fiduciaries. The plan document identifies the corporate entity or individual serving as the named fiduciary. If they aren’t immediately identified, the plan document will set the requirements for naming them. The named fiduciary can designate and give instructions to plan trustees.

Plan trustees. These are people who have exclusive authority and discretion to manage and control the plan assets. The trustee can be subject to the direction of a named fiduciary. These plan fiduciaries have a broad scope of responsibility.

Board of directors and committee members. ERISA considers individuals — typically the corporate board of directors, who choose plan trustees and administrative committee members — fiduciaries. The scope of their fiduciary duty focuses on how they fulfill that specific function, and not on everything that happens with the plan itself. The law also sees as fiduciaries people who exercise discretion in key decisions about plan administration, including members of an administrative committee, if such a committee exists.

Investment advisors. The named fiduciary can appoint one or more investment managers for the plan’s assets. People or firms who manage plan assets are plan fiduciaries. However, individuals employed by third party service providers can fall into different fiduciary categories. The investment manager who has complete discretion over plan asset investments (known as an ERISA 3(38) fiduciary) has the greatest fiduciary responsibility.

In contrast, a corporation or individual who offers investment advice, but doesn’t actually call the shots (an ERISA 3(21) fiduciary), has a lesser fiduciary responsibility. The advice can be about investments or the selection of the investment manager.

Service providers. If you use service providers, be sure the service agreement clearly specifies when a service provider is acting in a fiduciary capacity.

Anyone who exercises discretionary authority over any vital facet of plan operations falls under a catch-all category of a “functional fiduciary.”

Training your fiduciaries

Given the crucial role fiduciaries play, they must be properly trained for the role. This is a step that’s often neglected and can be of particular concern for company employees who don’t have full-time jobs related to running the plan.

Failing to properly train fiduciaries to carry out their roles may represent a fiduciary breach on the part of the other fiduciaries responsible for selecting them. The U.S. Department of Labor is known to focus on this when it reviews a plan’s operations. Also, have named fiduciaries (such as individually named trustees or members of plan committees) accept in writing their role as a fiduciary.

Providing proper insurance

A sometimes overlooked task includes properly protecting your plan’s fiduciaries against costly litigation and penalties with insurance designed for this purpose. Companies generally cover fiduciaries who also serve as corporate directors or officers through directors and officers or employment practices insurance policies. These generally don’t extend to fiduciary breaches.

And remember, ERISA fidelity bonds protect the plan’s assets from theft or fraud, not from fiduciary breaches. ERISA requires a fidelity bond, but not fiduciary liability insurance. However, given that anyone who is a fiduciary is personally liable for any violation of their fiduciary duties, you should have fiduciary liability coverage, often called an ERISA rider.

Focusing on the wrong investments

Stock market volatility and speculation about changes in Federal Reserve policies (and their resulting financial market impact) can lead plan fiduciaries to rely on retirement fund investment alternatives that focus on narrow sectors and strategies. This can divert fiduciaries’ attention from the investment options where most of their participants are parking the majority of their retirement savings: stable value and target date funds (TDFs).

Neglecting the big picture

Ultimately, retirement plans should prepare employees for retirement. How well that’s accomplished is often referred to as participant “outcomes.” Fiduciaries with broad responsibility for plans that ignore the big picture ultimately are failing participants, and possibly making themselves vulnerable to a charge of neglecting their fiduciary duties. Reviewing the common mistakes regularly can help you avoid making them.

Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Want to learn more?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

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Employee Benefits Update: August/September 2016

This issue’s topics include:

DOL fiduciary rule rocks plan investment advice landscape

When the final version of the U.S. Department of Labor’s fiduciary standards rule for advisors to retirement plans was issued in April, the wait for the long-anticipated regulatory package was over. With the benefit of the intervening months, the implications for plan sponsors have become clearer. This article highlights what plan sponsors need to know about the new rule. A sidebar looks at what constitutes investment “advice.”

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Employee Benefits Update: June/July 2016

This issue’s topics include:

DOL liberalizes views on economically targeted investments

The U.S. Department of Labor (DOL) has reversed guidance it issued in 2008 with respect to retirement plans’ allocating funds to economically targeted investments (ETIs) that consider environmental, social and governance factors. This article discusses the DOL’s about-face on this topic. A sidebar discusses whether plan fiduciaries are required to do anything new with respect to ETIs.

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Employee Benefits Update: April/May 2016

This issue’s topics include:

Plan fee benchmarking
Key fiduciary considerations when reviewing plan fees

Are the services a plan receives reasonably priced? Knowing the answer is a vital fiduciary duty. ERISA expects more from plan fiduciaries than simply shopping around for plan providers offering rock bottom rates. This article summarizes some key areas all fiduciaries must consider when benchmarking costs of their qualified retirement plan. A sidebar discusses a report that suggests ways employers can help current plan participants ease into retirement.

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Employee Benefits Update: February/March 2016

This issue’s topics include:

  • IRS eases pain for correcting certain plan administration errors
  • What are you forgetting? Reviewing commonly overlooked fiduciary duties
  • It may be time to offer annuity options to 401(k) plan participants
  • Shut the door: IRS ends defined benefit plan lump sum payouts

 Employee Benefits Update February March 2016 Click Here to Download

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Want to learn more?

Join our Employee Benefit Plan Resources group on LinkedIn for more frequent updates on recent developments and best practices and discuss related topics with your peers.

Join the Group

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Employee Benefits Update: Year End 2015

This issue’s topics include:

  • Determination letter limbo: IRS makes changes to determination letter program
  • Tibble case puts focus on fiduciaries’ ongoing duties
  • Give employees more bang for their buck: How to use default deferral rates and auto-escalation clauses
  • Is a customized TDF right for you?

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Click Here to Download

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Employee Benefits Update: October/November 2015

This issue’s topics include:

  • Be careful what you toss: Plan record retention requirements
  • Year end notices: Staying on top of the requirements
  • Survey says…Poll highlights what participants think they know
  • When electronic disclosure isn’t enough under ERISA

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Click Here to Download

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Employee Benefits Update: August/September 2015

This issue’s topics include:

  • 401(k) rollovers: How rollovers to your plan can benefit everyone
  • DOL reproposes ERISA fiduciary investment advice regulations
  • Are you insured? Fiduciary liability insurance can help when problems arise
  • Court finds that plan document trumps beneficiary designation forms
  • Compliance alert

Employee Benefits Update August/September 2015

Click Here to Download

As always, we hope you enjoy this edition of our newsletter and we look forward to receiving your feedback. Should you have any questions regarding the information contained in the attached materials or our service offerings, please feel free to contact me directly.

Preventing Data Theft in QuickBooks

The QBC: QuickBooks® Client Newsletter

Preventing Data Theft in QuickBooks

Be proactive about the security of your QuickBooks company file, and you’ll be less likely to encounter data theft.

Thanks to the internet, privacy has been on the wane over the last few years. We assume that our addresses and phone numbers are public information, thanks to sites like Switchboard and 411.com. We hope that our dates of birth are private (though the number of birthday wishes on Facebook makes that doubtful), and we assume that our Social Security numbers are hard to get.

Your customers trust you enough to provide you with additional private information, like credit card numbers. And you’ve seen what an uproar occurs when major corporate entities like Target and Home Depot get hacked.

Your small business may not have hundreds of thousands of customer information files, but you can still be targeted by external hackers and even your own employees. Are you taking measures to ensure the security of that data stored on your hard drive and/or in the cloud? (more…)

How QuickBooks’ Custom Fields Can Provide Better Business Insight

The QBC: QuickBooks® Client Newsletter

QuickBooks’ customizability makes it flexible enough for countless business types. Custom fields are a big part of that.

QuickBooks makes it possible for your business to create very detailed records for customers, vendors, employees, and items. In fact, you may find that you rarely make use of every field each contains.
But you may also find that there are additional fields that you’d like to see in your predefined record formats. That’s where custom fields come in. QuickBooks lets you add extra fields and specify what their labels should be.

You can define up to 12 total fields for use in customer, vendor, and/or employee records. QuickBooks treats these just as it treats your built-in fields. They appear in the records themselves, of course, and are included when you export a file containing them. You can also search for them in reports.

People Records

There are separate processes for defining fields for your individual and company contacts and your items. Let’s look at how you can set up custom fields for customers, vendors, and employees first.

Go to your Customer Center and open a blank Customer record (in newer versions of QuickBooks, you’ll click on New Customer & Job in the upper left corner, and then click New Customer). Then click the Additional Info tab in the left vertical pane of the New Customer window, then click on the Define Fields button in the lower right. This window will open (with blank fields):

 

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Figure 1: You can create up to 12 total custom fields that will be shared by customers, vendors, and employees.

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