When it comes to group retirement plans, many business owners don’t realize that they may have a fiduciary responsibility to their employees. This responsibility isn’t just about selecting investments; it’s about ensuring that the plan is in the best interest of participants.
What is Group Retirement Plan Fiduciary?
In the world of retirement plans, fiduciaries are individuals or organizations that have the legal obligation to act in the best interests of the plan’s participants. Essentially, a fiduciary must ensure that everything about the plan, from investment choices to administrative fees, is managed in a way that benefits employees, not the employer or any third-party vendors.
Types of Fiduciaries in Retirement Plans
Fiduciary duties can be split between multiple parties, and it’s essential to understand the different roles that exist in a retirement plan. There are two main types of fiduciaries: co-fiduciaries and investment fiduciaries.
- Co-Fiduciary: This type of fiduciary shares the responsibility of managing the plan with others. All fiduciaries are held accountable for ensuring the plan is managed appropriately, even if they don’t directly manage every aspect of it.
- Investment Fiduciary: An investment fiduciary is responsible for selecting and monitoring the investment options offered through the plan. They have the duty to ensure that the investments are suitable for participants and that they’re continuously monitored for performance.
Why Fiduciary Responsibilities Matter
Why should you care about fiduciary duties? Well, if you’re a plan sponsor, you’re legally obligated to act in the best interest of your employees. This means you need to make sure that the fees you’re charging are reasonable, that the investment options are solid, and that the plan is functioning efficiently.
In the past few years, we’ve seen an increase in lawsuits against employers for failing to meet their fiduciary responsibilities. For instance, if a retirement plan offers poorly performing investments or excessive fees that aren’t properly disclosed, it could lead to litigation. These lawsuits can be costly, so it’s crucial to avoid these pitfalls by understanding what your fiduciary duties are.
What Are A Fiduciary’s Responsibilities?
To fulfill your fiduciary duties, it’s important to:
- Monitor Fees: Be aware of the fees associated with the plan, including administrative fees, record-keeping fees, and any hidden investment-related costs. Hidden fees can reduce the retirement savings of your employees over time, so it’s essential to make sure everything is transparent and fair.
- Vet Investment Options: Make sure the investment options offered through the plan are suitable for the employees and align with their retirement goals. You don’t want employees to be exposed to unnecessary risks.
- Regularly Review the Plan: A retirement plan isn’t something you set and forget. It’s important to regularly review the plan and benchmark its performance against industry standards. At Langan Financial, we recommend revisiting your plan every three to five years to ensure it’s still the best option for your business and employees.
- Document Everything: Make sure all decisions are documented and that the reasoning behind those decisions is clear. This includes reviewing investment options, evaluating fees, and ensuring that everything is in line with your fiduciary responsibilities.
As a fiduciary, you may also want to consider bringing in a financial advisor near you, who can help manage the plan and ensure that you’re meeting all requirements. This helps provide an extra layer of protection for both you and your employees.
