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concerns for 401(k) plan sponsors


401(k) plans that create opportunities


Protecting yourself from fiduciary lawsuits


Benefits of outsourcing your fiduciary duty p2 FS401k.COM




y now, most business owners understand that offering a company retirement plan creates some liability, but are you really clear on exactly what you’re responsible for? The defendants involved in the fiduciary lawsuits of Tibble v. Edison International and Sacerdote v. New York University found out the hard way. A close look at the details of each these cases brings to light some valuable lessons all employers can use to help keep their company retirement plans complaint and keep themselves of the courtroom.


The rules do not define a right or wrong way to choose the investments, but they do require that you have a prudent process for arriving at your decisions.

Back in 2007, participants in the Edison International 401(k) plan filed a lawsuit against their employer. They alleged a breach of Fiduciary duty under the rules laid out in the Employee Retirement Income Security Act (ERISA). In their claim, they stated that the investment options in the plan consisted of mutual funds that were readily available in lower-cost share classes, and that the extra expenses negatively impacted their investment returns. Because the fund line-up was chosen in 1999 and the suit wasn’t filed until 2007, the case was dismissed based on the six-year statute of limitations under ERISA law. However, in a unanimous decision issued in May of 2015, the U.S. Supreme Court ruled that employers offering a company retirement plan have a continuing fiduciary duty to monitor the investment options offered to participating employees. This means that employees can file suit within six years from the time a plan sponsor failed to monitor the investment selections or remove an inappropriate investment from the line-up, not from the time the investments are initially selected. THE TIBBLE V. EDISON INTERNATIONAL RULING ALSO OUTLINED SPECIFIC GUIDELINES FOR PLAN SPONSOR RESPONSIBILITIES AS FOLLOWS: 1. Plan sponsors must initially select investment options which they believe to be prudent or retain a qualified investment fiduciary to assist in the process. 2. Once you choose the investment options, there is a separate duty to continually monitor them, ensuring that they remain the most prudent options. 3. If an investment option becomes imprudent, the plan sponsor or investment fiduciary has a duty to remove it and replace it with an appropriate alternative. 4. To prove that you’re meeting your duty to continually monitor the investments, you must have a regular review process in place. THE TAKEAWAY: BEST PRACTICES To comply with these court-ordered requirements, plan sponsors need to take a second look at their current practices. If it’s been a while since your last investment review, now is the time to initiate

one. Don’t make the mistake of assuming your record keeper or custodian is handling this for you. In most cases, these parties do not serve as fiduciaries on company retirement plans. Also, ensure that you have a clearly defined process in place to periodically review your plan’s investment options. This review should include taking a deep dive into the investment’s performance, fees, available disclosures, and any significant changes such as a new investment manager. You may consider establishing an investment review committee or hiring an outsourced administrative fiduciary to handle these regular periodic reviews for you. SACERDOTE V. NEW YORK UNIVERSITY: THE NEED FOR A DISCIPLINED REVIEW PROCESS In the 2018 case of Sacerdote v. New York University, the courts ruled in favor of the plan fiduciaries, despite finding some “deficiencies” in a few of the committee members. Some of the committee members were unsure what their responsibilities were or how to execute on them. This is just a recipe for disaster. However, there were two primary factors that led to the courts to rule for the defendants in this case. The first was that the committee had some informed and engaged members who knew that hiring outside professionals to assist in the maintenance of their plan was the smart thing to do. The second, and possibly most important, saving grace was the committee’s disciplined review process. Many of the allegations brought up in the case were countered by referencing detailed documentation of how decisions were reached. THE TAKEAWAY: BEST PRACTICES Plan sponsors can take a lesson from the New York University investment committee by adopting the following practices: 1. SCHEDULE PERIODIC PLAN REVIEWS Plan sponsors and investment committees are required to review the details of your retirement plan as frequently as necessary to properly do the job. Meetings should be held no less than annually, while quarterly reviews are ideal. 2. HIRE EXPERT PROFESSIONAL(S) Although this is not a requirement, it’s hiring an expert to help monitor your plan is a best practice. Lacking the necessary expertise to make prudent decisions and documenting those decisions does not excuse you or your committee members from the duty to do so. Working with a professional co-

fiduciary shows that you’re putting forth your best effort to ensure plan compliance. 3. ADOPT AND FOLLOW AN INVESTMENT POLICY STATEMENT Following an Investment Policy Statement (IPS) is also not a legal requirement but rather a best practice. This document explains the investment selection process and serves as a guideline for your investment committee. Investment options that are consistent with the written IPS are more likely to stand up to legal scrutiny. 4. CAREFULLY SELECT AND EDUCATE COMMITTEE MEMBERS Although the courts ultimately ruled in favor of NYU, they did criticize the performance of some of the committee members. When selecting your investment committee members, ensure they’re willing to stay engaged and fully understand the level of fiduciary responsibility they’ve accepted. Periodically review the performance of your committee members and make adjustments as needed. If you’re a small business who doesn’t have a retirement plan committee, taking on these responsibilities alone can be risky. For instance, it was a disgruntled employee that initiated two important cases, Tibble v. Edison International and Sacerdote v. New York University. These cases created a huge disruption for these businesses. It makes sense to do it right the first time. WHAT’S YOUR A PLAN FOR AVOIDING FIDUCIARY LAWSUITS? If you want to avoid fiduciary lawsuits, you must have a clear understanding of your responsibilities as a plan sponsor. Under ERISA laws, plan fiduciaries have a duty to select prudent investment options that are in the sole interest of all plan participants and beneficiaries. These options should allow for diversification to avoid the risk of large losses and should remain in line with plan documents. The rules do not define a right or wrong way to choose the investments, but they do require that you have a prudent process for arriving at your decisions. The unfortunate fact is that 401k lawsuits are not uncommon. Do you have a solid plan in place to keep yourself out of the courtroom? If you aren’t able to answer this question with 100 percent confidence, it’s time to take action. Contact FiduciaryShield today to schedule a plan review.





s an employer sponsoring a 401(k) plan, you’re tasked with a great amount of responsibility. When it comes to requirements like choosing proper investment options, understanding distribution regulations, and properly filing government reports, many business owners are pushed out of their comfort zones. Luckily, no one expects you to know how to do it all. In fact, under ERISA rule 401a1B, plan sponsors are required to hire “prudent experts” to assist in areas where they lack competency to fulfill their Fiduciary duties. In the past, business owners often chose to work with professionals whom they were already doing business with, like their insurance agent or CPA. Unfortunately, hiring a generalist to oversee your 401(k) plan doesn’t really help you meet your Fiduciary requirements. Some plan sponsors choose to work with multiple specialists, but are then tasked with pulling it all together, ensuring that each professional meets his or her fiduciary responsibility and that everyone is charging reasonable fees. There’s now a better way. Hiring FiduciaryShield as your full-service outsourced Administrative Fiduciary gives you the peace of mind in knowing you have a partner who will ensure you’re meeting all your obligations. By bringing everything under one umbrella, you’re leveraging the power of prudent experts, while keeping your costs under control. Here are five of the most important services you’ll receive. 1. Plan Documentation Plan documentation services include a review and interpretation of your current plan documents and notification of any observed plan irregularities. We will hep you administer your loan policy and maintain your plan documents in accordance with Department of Labor (DOL) and IRS requirements. FiduciaryShield reviews your Fidelity bond to ensure it meets ERISA requirements and will help you maintain

the proper Fiduciary insurance. 2. Distribution Requirements Plan sponsors are ultimately responsible for properly processing 401(k) distributions. This may include: • In-service or hardship withdrawals • Loan requests • Distributions due to separation from service • Qualified domestic relations orders (QDRO) • Required minimum distributions (RMD) • Corrective refunds We review all requests before you sign off on them, helping to ensure you stay in compliance.

helps ensure the proper notices reach your employees on time.

3. Participant Management Services FiduciaryShield helps you keep track of employee eligibility and vesting schedules. We will monitor loan defaults, review deferral suspensions due to hardship withdrawals, and help you find terminated participants when necessary.

Experience the Difference of Working with an Outsourced Administrative Fiduciary Your 401(k) plan should be more of a benefit than a burden. Are ready to outsource your plan administration so you can get back to doing what you do best? FiduciaryShield gives you the freedom to do just that. Contact us today to learn how we can help you offer A Better 401(k).

4. Notice and Disclosure Requirements Plan sponsors are tasked with multiple disclosure requirements including: • 404(a)5 annual notifications • Safe harbor notices • Annual Qualified Default Investment Alternative (QDIA) notices • Summary of material modifications • Summary of annual reports FiduciaryShield keeps track of your deadlines and

5. Government Reporting Assistance Properly submitting your government reports is a critical part of 401(k) plan administration. We help make this easy by preparing your IRS forms 5500 and 8955SSA. We also reconcile your plan year end to verify you’ve met your annual employer contribution requirements and run profit sharing calculations.





here are plenty of reasons why business owners shy away from offering a company 401(k) plan. Many feel their business isn’t large enough to make offering a 401(k) plan feasible and are intimidated by the costs, administrative responsibilities, and financial commitment. The truth, however, is that every company should seriously consider putting a 401(k)-retirement plan into place. Let’s take a look at some of the reasons why. 1. CONCERNS OVER COSTS ARE OFTEN UNFOUNDED 401(k) plans are now far more small-business friendly than they were in the past. Companies with only a handful of employees and even single-owner businesses can reap the benefits of a 401(k) without too much hassle or expense. Plan providers have recognized the need to offer services to smaller businesses and have created products that are surprisingly cost-competitive. To implement a plan, you’ll usually pay an up-front fee and ongoing administrative or recordkeeping costs. In most cases, the total cost is less far less than you might expect. Some businesses will qualify for a government tax credit to help further the costs of starting a retirement plan. Individual 401(k) plans offer even lower fees, although they do not qualify for the credit. 2. GREAT RETIREMENT BENEFITS HELP ATTRACT TOP TALENT With the current U.S. unemployment rate hovering at less than 4 percent, business owners now have to work harder than ever to attract and retain great employees. Showing your employees that you’re invested in them makes them more engaged and less likely to seek other opportunities. Having a retirement plan in place also makes you more competitive when seeking out qualified new hires. 3. BUSINESS OWNERS NEED RETIREMENT SAVINGS, TOO Research shows that 47 percent of small business owners are contributing less than 10 percent of their income to retirement savings. A shocking 25 percent aren’t saving anything at all. While many business owners plan to supplement their retirement with the sale of their business, this typically is not the best strategy. Systematically deferring funds to a retirement plan throughout your working years is a much safer option.

4. MATCHING FUNDS ISN’T MANDATORY One of the most common misconceptions surrounding 401(k) plans is that business owners are required to match employee contributions. The fact is that you have the option to choose whether you’ll offer a match or not. Some employers opt out of a match completely while others offer an annual profit sharing that is based on how the business performs each year. Employers who choose to offer a match can set a vesting schedule that ranges from zero to four years. You have the flexibility to change your strategy throughout the life of the plan so you can choose what’s most appropriate for the state of your business at that particular time. 5. SAFE HARBOR 401(K) PLANS HELP ELIMINATE COMMON PROBLEMS Under a Safe Harbor 401(k), the employer can defer as much of their salary into the plan up to the maximum levels. The goal for every person should be to create a source of income at retirement, and this includes small business owners. A Safe Harbor Plan aids in reducing the business owner’s tax liability while increasing their personal net worth, a win-win. The government offers tax breaks to those who invest their money in a company retirement plan, but in doing so, it wants to ensure that all employees have an equal opportunity to benefit. This is why most plans are required to pass IRS-sponsored testing to prove they’re not discriminatory. Failing these tests can result in major headaches and costly repercussions. Fortunately, Safe Harbor 401k plans eliminate this concern, creating more opportunities for businesses. The added safety and reduced administrative costs make Safe Harbor 401(k)s the most popular type of plan for small business owners.

UNDERSTANDING THE DETAILS OF THE SAFE HARBOR 401(K) In simple terms, the Safe Harbor 401k is a quid pro quo agreement whereby the IRS excuses you from testing requirements in exchange for your agreeing

to encourage employee participation by making contributions to every employee’s 401(k) account. This is an excellent option for employers who were already planning to contribute to employee accounts and don’t want to deal with the headache of annual testing. If you already have a 401(k) plan and have consistently failed these tests or are concerned about low employee participation rates, switching over to a Safe Harbor plan design can help eliminate these problems. MATCHING OPTIONS There are three basic matching options available in a Safe Harbor 401k plan. They are basic matching, enhanced matching, and non-elective contributions. BASIC MATCHING Basic matching requires you to match 100 percent of the first three percent of an employee’s compensation and 50 percent of the next two percent of compensation. This means an employee who is contributing five percent of compensation would receive a four percent match. You are not required to match any contributions the employee makes in excess of five percent. ENHANCED MATCHING Under the enhanced matching structure, employers are required to make a minimum match of 100 percent of the contributions an employee makes, up to four percent. Under this structure, an employee would only have to contribute four percent to receive a four percent match. NON-ELECTIVE CONTRIBUTIONS Non-elective contributions are given to employees regardless of whether they contribute their own earnings to the plan. Employers must contribute a minimum of three percent of each employee’s compensation every year that this option is elected. It’s important to remember that each of the guidelines above are minimum contribution levels. Also, no matter which plan type you choose, any contributions you make are immediately 100 percent vested.

LET US HELP YOU CHOOSE THE RIGHT PLAN DESIGN FOR YOUR BUSINESS NEEDS There are now retirement plan options available to address almost every business-owner concern. If you’re still not sure about which plan is right for you, our plan consulting services can help. Contact us today so we can discuss your goals and help you design the perfect plan. FIDUCIARY SHIELD | THE BETTER 401(k)




s business owners evaluate the state of their current company 401(k) plans, a pattern of common concerns arises. What are the biggest plan sponsor concerns and why are they on the forefront of everyone’s mind right now? You’re about to find out!


The following seven major issues are currently plaguing plan sponsors. If these issues haven’t yet raised a concern for you, maybe they should.

When a plan participant requests a hardship withdrawal from their 401(k), it can create an awkward situation for everyone involved. The participant often doesn’t understand why they can’t have immediate access to their own money, and, in many cases, the employer might agree with them. After all, why should they risk losing their home or some other financial crisis when they have sufficient funds to cover their needs sitting in their retirement account? The flip side of this is the desire to protect employees from themselves. Even a small withdrawal now can have a major impact on your employee’s ability to retire comfortably in the future.

One thing everyone seems to agree on is that the ability to make withdrawals should be limited to some extent. The Bipartisan Budget Act of 2018 (“Budget Act”) introduced new legislation that goes into effect on January 1, 2019. Since the proposed regulations weren’t released until mid-November,many plan sponsors were required to make these decisions without sufficient clarification. The specific impact of these law changes is yet to be seen. 2. COMPLIANCE REQUIREMENTS Everyone knows there are plenty of compliance requirements when it comes to maintaining a 401(k) plan. However, most business owners are simply too busy trying to maintain company profits to give it the attention it deserves. Most plan sponsors turn this responsibility over to third parties, but it’s important to understand that doing so does not relieve you of your ultimate responsibility. It’s always possible that the professional you hire can make a mistake, and if this happens, the liability still falls squarely on your shoulders. If you’re relying on your custodian to handle your compliance issues, you’re likely not as protected as you think you are. Many of these vendors do not take a proactive approach to ongoing compliance. You can save yourself a lot of headaches by ensuring that the third-party you outsource to is as concerned about keeping you out of trouble as you are. Note that selecting a vendor in itself is a fiduciary act, so you’ll need to pay careful attention to the services offered and the value they bring.

owner, your number one priority is to maintain the sustainability of your company. This means you need to make money, attract qualified employees, and remain competitive. In a tight labor market where wages continue to rise, this continues to be a challenge. With unemployment at the lowest rate since the 1960’s, business owners are realizing more than ever how important it is to offer a quality benefits package. Having a basic plan with a company contribution inplace is no longer sufficient. The best plans now focus on providing quality financial education to employees. A financially-healthy employee is more motivated and productive, creating a win for all parties involved. 4. LOW EMPLOYEE PARTICIPATION RATES If you offer a plan but very few of your employees are participating, what good does it really do? Autoenrollment can significantly improve participation rates. However, according to a survey by Vanguard, only 15 percent of small businesses have adopted this practice. Plans that do take advantage of auto-enrollment typically see participation rates of over 80 percent, while those who don’t hover somewhere around 58 percent. It’s clear that auto-enrollment can make a big difference, but it’s not enough. You can improve your participation rates even further by working with a professional to provide quality employee education an ensure the enrollment process is easy. Increasing the employer contribution and allowing for immediate eligibility are also effective tactics for encouraging your employees to enroll in the plan. 5. INSUFFICIENT SAVINGS RATES According to a recent survey by Bankrate, 65 percent of Americans aren’t saving enough for their retirement. Even worse, 20 percent aren’t saving anything at all! Employers who are concerned about their employees’ low savings rates can help by working with a third party to move away from the standard “quarterly enrollment meeting,” and instead provide interactive education opportunities designed to encourage them to save more.


6. 401(K) PLAN COSTS

Let’s face it, if you can’t turn a profit in your business, there’s no need for a 401(k) plan because eventually there will be no salaries and no jobs. As a business

It seems like you can’t go a single day lately without hearing about concerns over 401(k) plan costs. From administrative expenses to internal fund costs,

recordkeeping expenses, and other expenses embedded in the plan, it’s the responsibility of the plan sponsor to know exactly what is being paid, to whom, and why.

If you’re not 100 percent clear on this, now is the time to find out, since failing to do so can land you in hot water. This leads us to the final, and possibly most important, plan sponsor concern. 7. FIDUCIARY LIABILITY The term “fiduciary liability” refers to the overall personal level of risk a plan sponsor takes on when offering a company 401(k) plan. While it’s certainly no fun, the discomfort created by this liability does exactly what it’s supposed to do. It makes you more concerned about the appropriateness of your plan than you would be otherwise. By giving YOU personal liability, the DOL has ensured that your best interests and those of your employees are one and the same. You don’t want to take the chance of being sued by your employees or facing serious fines, so you do everything in your power to make sure things are done right.At the end of the day, that’s a good thing.

BEST PRACTICES FOR ADDRESSING PLAN SPONSOR CONCERNS Now that you’re aware of the most important plan sponsor concerns, you’re probably wondering what to do about them. FiduciaryShield provides a unique service that addresses all of these issues and more. Contact us today to learn how we can give you peace of mind and help make 2019 your best year ever. FIDUCIARY SHIELD | THE BETTER 401(k)


Profile for FiduciaryShield

Winter 2019 | Advisor-Partner eMagazine  

Inside, find compelling and informative articles for 401(k) plan advisors, like... 7 Biggest concerns for 401(k) plan sponsors 401(k) plan...

Winter 2019 | Advisor-Partner eMagazine  

Inside, find compelling and informative articles for 401(k) plan advisors, like... 7 Biggest concerns for 401(k) plan sponsors 401(k) plan...