Why it’s Important to Review, Refresh, and Revise Retirement Plan Documents

You likely recognize the importance of seeing your doctor for an annual physical to keep your health in tip-top shape, or taking your car in for routine maintenance to keep it running like new.  

But what about checking the health of your retirement plan? When is the last time you reviewed your retirement committee charter, investment policy statement (IPS), and other key retirement plan documents to ensure you’re in compliance with fiduciary standards?

Ideally, you should meet with your plan’s advisor at least once a year to evaluate the overall health of your retirement plan, which includes reviewing plan documents and operations to help ensure they are up to date with current guidance and regulations.  

Always a Fiduciary: An Ongoing Responsibility

As a retirement plan sponsor, you are a fiduciary to the plan. And as a plan fiduciary, adhering to plan documents is one of your most important roles. This means you have an ongoing and continuous responsibility to monitor:

• the plan,  
• service providers,
• investment offerings, and  
• operations.

It’s your job to ensure they are being managed in the sole interest of your participants and their beneficiaries, and for the exclusive purpose of providing benefits and paying plan expenses.[1] Not following these standards of conduct could subject you to personal liabilities. In addition, courts could take action against plan fiduciaries who breach their responsibilities. There has already been a plethora of lawsuits against plan fiduciaries in recent years.  

In 2015, associate Supreme Court Justice, Stephen J. Breyer, famously submitted his verdict of the landmark Tibble v. Edison case, which set a precedent for fiduciary breach cases regarding the monitoring and selection of retirement plan investments. He stated that “… a trustee has a continuing duty — separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove imprudent, trust investments.” In short, monitoring and managing your retirement plan, its investments, and operations are not responsibilities to be taken lightly.

Compliance Never Sleeps  

Moreover, government and regulatory agencies such as the Department of Labor are continually monitoring plan fiduciaries to make sure they are following plan documents and procedures in accordance with the Employee Retirement Income Security Act (ERISA), the law that governs employer-sponsored retirement plans. Ultimately, this puts the onus of compliance and proper plan management on you. That said, it can be helpful to partner with your plan advisor to perform annual plan reviews for any common mistakes while managing your retirement plan and investments.  

Here are tips to avoid six of the most common mistakes:

1. Poor investment oversight. Create an investment committee, led by a qualified financial professional. Conduct periodic investment reviews and ongoing monitoring towards ensuring the plan’s investment options and fees are appropriate for all participants.  

2. Failure to conduct periodic plan reviews. Regulations are constantly evolving. Conducting a periodic plan review or benchmarking process, preferably with an independent third party, can help ensure that plan fees are reasonable and the plan is promoting positive outcomes for participants.  

3. Failure to take timely action. Failing to remedy known compliance issues in a timely manner, such as investments failing watch list criteria or runaway plan costs, can result in serious penalties or personal liability for plan fiduciaries.

4. Lack of an up-to-date Investment Policy Statement (IPS). Typically maintained by the retirement plan investment committee with help from the plan advisor, the IPS guidelines address how the plan’s investment options are selected, monitored, and managed. The IPS should be periodically reviewed and updated to reflect the plan’s current goals. Many employers create an IPS but fail to follow or update it, putting them at risk for a breach of fiduciary duty.  

5. Lack of a proactive participant education and communication plan. Three markers of retirement plan success are widespread participation, high savings rates, and adequate investment diversification. An effective participant education and communication program can help increase deferrals and promote proper asset allocation for participants. It can also make a significant difference in your plan’s success.  

6. Not following the terms of the plan document. It’s important to make sure employees are being enrolled as they become eligible, participants are receiving the correct employer matching contributions, and loans and distributions are being handled according to the policies and procedures in the plan documents.

If you identify operational or compliance errors during your annual review — don’t panic. The Internal Revenue Service (IRS) and Department of Labor (DOL) have programs to assist you in fixing mistakes. Your plan’s advisor and third-party administrator (TPA) can help with operational and compliance errors, too.  

Keep in mind that once you’ve identified and corrected any plan errors, put processes in place to avoid future mistakes. In addition to conducting annual reviews, perform regular maintenance to ensure your plan remains in good health — just like sticking to a healthy diet and exercise regimen prevent illness.  

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