Plan Sponsors have very important duties, and it centers around ALWAYS putting the best interest of participants and beneficiaries first. There are three important duties a Plan Sponsor should follow: first avoid any potential, existing, or perceived conflicts of interest, second showing a documented process as to why the service providers were chosen and third to ensure the fees are reasonable. It’s so important that a Department of Labor (DOL) investigation will heavily scrutinize the plan for this.
First, when hiring a provider a consideration that a conflict of interest may exist is necessary to avoid any future problems. An example is insurance companies that serve as the recordkeeper may have proprietary investments in the menu. While at face value it may seem acceptable, but proper disclosures must be given and the question needs to be asked. If a different investment menu were used, what impact on recordkeeping pricing would change? This could potentially influence the plan sponsors decision and now the interest of the participants is no longer relevant.
Secondly, a plan sponsor may want to outsource the administrative duties to a 3(16) Administrator. A 3(16) administrative fiduciary will handle the day-to-day, such as approving distributions and determining employee eligibility to participate in the plan. That’s all they do. They only provide limited compliance. The prudent process still falls on the shoulders of the plan sponsor.
Third, ensuring the fees are reasonable is important for the participant, so it should be important to the plan sponsor. Having the fees properly documented is necessary to show that fees have come down when assets have risen and are also useful to have in the benchmarking process. This is part of the documented process.
This is why having FiduciaryShield as your Full Scope 3(21) is necessary. We not only administer the day-to-day of the plan, but we also review where any conflicts of interest could exist, our prudent process properly documents for you why the service providers were chosen and the fees paid to ensure they are reasonable. FiduciaryShield doesn’t provide limited compliance, we provide the full compliance package.
A plan sponsor can never fully outsource their fiduciary responsibilities, but with FiduciaryShield it comes pretty close. It’s time for the better 401(k). Call us at (941) 761-401(k) or email us at info@FS401k.com to speak with a plan administration coordinator.