September and October always mark a flurry of activity for Form 5500 filers, otherwise known as filers of the Annual Return/Report of Employee Benefit Plan IRS form. As a matter of fact, I was recently reviewing some filing statistics for last year and between 65% – 75% of Form 5500 filings in the Atlanta area occurred in the month of October, driven by the October 15th filing deadline.

By this time of the year, 401(k), 403(b), health and welfare, and pension Plan Sponsors can find themselves primarily focused on the compliance aspect of filing their return along with audited financial statements before the deadline. However, there are value-added recommendations that can come out of the audit process to help Plan Sponsors administer their Plan on a day-to-day basis, especially with fiduciary responsibilities being such a hot topic.

Fiduciaries are individuals or entities that exercise discretion or control over the Plan. Administration and management of the Plan, controlling Plan assets, and/or carrying out actions on behalf of the Plan equate to fiduciary actions. Fiduciaries have important responsibilities and standards for conduct that govern their actions, and failing to follow them can result in exposure for litigation.

Looking back at this audit season as well as previous audit seasons, I see a common trend of recommendations we are making to Plan Sponsors to help them fulfill these fiduciary responsibilities. Here are our top 5:

1.    Form a Plan Administrative and/or Investment Committee

These committees can be one in the same or two different committees. Preferably the committee is made up of senior-level Company officials from human resources, finance, and operations that meet on a quarterly or annual basis to discuss important aspects of the Plan, including Plan compliance items, investment performance, Plan changes, etc. Each member should be familiar with the Plan Documents, fiduciary responsibilities, and investment policy. A secretary should be appointed to keep meeting minutes.

2.    Keep written minutes from committee meetings

Without documentation, it is difficult to demonstrate that fiduciaries have performed their duties and have acted in the best interest of Plan participants. The minutes should detail when the meeting took place, who was present, what was discussed, what decisions were made, and any action items for future meetings.

3.    Adopt an investment policy and follow it

An investment policy provides a clear roadmap to follow when monitoring Plan investment performance. The investment policy will include guidance on what investments should be in the Plan, how the investment performance should be monitored, and the process for replacing funds. The investment policy should then be followed by the Plan Committee.

4.    Engage a third-party investment advisor

Plan Sponsors can become overwhelmed by investment option monitoring and benchmarking and may be unsure of how to document an investment policy. A wise decision by the Plan Sponsor is to employ the help of an independent investment advisor. The investment advisor should be included in the Committee meetings to present overall market performance and Plan investment performance. Some Plan Sponsors rely on the advisement of their asset custodian; however, an independent investment advisor provides an unbiased review of the Plan.

5.    Benchmark plan fees annually

Plan participant fees have become a primary focus of fiduciary responsibility. Fiduciaries have an obligation to ensure only reasonable Plan fees and expenses are paid from plan assets and to understand the totality of the fees as some can be hidden within investment returns. More transparent fee disclosures have rolled out the past several years which are allowing Plan Sponsors to use this information as leverage when negotiating with service providers for recordkeeping and investment management services. Understanding these fees on an annual basis, while also considering the quality of the service in relation to the fee paid, can assist the Plan Committee with Plan decisions.

Final Thoughts

Employee benefit plans play a very important role in the retirement of employees. The Department of Labor expects Plan Sponsors to be looking out for the best interest of the Plan participants, and the level of scrutiny and litigation is continuing to increase. Implementing the recommendations detailed above will help shield and protect employers and ensure that employees have a healthy retirement option.

Candace Jackson is a Director in Moore Colson’s Business Assurance Practice. She manages audit and review teams and serves as a Practice Area Leader in the firm’s Employee Benefit Plan Practice.