Read what our experts had to say about best practices.
What does “best practices” mean?
Best practices are a set of guidelines that portray a prudent course of action for ERISA plans. Best practices are not, however, defined in a list-like fashion in any law. Even though best practices only generally describe a prudent course of action, the U.S. Department of Labor requires industry best practices be followed by every enterprise that sponsors employee benefit plans qualified under ERISA.
What activities do best practices embrace?
ERISA expresses the behavior expectations of plan sponsors only in broad principles. It’s up to each enterprise to transform those principles into a plan of action. An examination of the activities that ERISA touches reveals that four disciplines define the scope of best practices and they include: Governance, Administration, Investments, and Controls.
Are the steps needed to perform the fiduciary disciplines defined?
Yes. A handbook Retirement Plan Administrator: Scope and Conduct was developed by the Investment Fiduciary Leadership Council. It defines 72 specific steps, which are organized into each of the four disciplines of ERISA fiduciary duty, that map a compliance pathway for human resources executives and managers. ( Ask Roland|Criss for a complimentary copy.)
Isn’t our plan’s recordkeeper obligated to enforce best practices?
While many service providers including recordkeepers and TPAs are promoting what they call “3(16) fiduciary services,” our research indicates that many of them do not perform the role actually described in ERISA Section 3(16) from which the term is derived. Human resources managers still occupy the role of responsible plan fiduciary regardless of the marketing claims made by such vendors. Responsible plan fiduciaries are accountable for enforcing best practices.
I know that managing our plan’s fees is a required practice, but how do I know if our vendors’ fees are fair and reasonable?
Vendors’ fees are a major focus of the U.S. Department of Labor and class-action attorneys. While fees should be fair, the results of the recent enforcement focus reveal that vendor compensation must be appropriate. Executives that oversee their organizations’ retirement plans should commission an independent annual assessment of their plans’ fees from a firm that delivers an opinion of assurance that the fees are reasonable. Our Vendor Value Index assessment delivers that assurance.
Roland|Criss is a professional Plan Administrator under ERISA section 3(16) for clients in a diverse array of industries.
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