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Written Governance Policies are Vital
By outlining the measures to take when different situations emerge, having clear rules and procedures for ERISA-qualified retirement plans, as an example, enables fiduciaries to execute their duties efficiently and with confidence.
Although not required by law, several policies have emerged from an examination of ERISA’s fiduciary principles, in guidelines issued by the U.S. Department of Labor (“DOL”), and as a result of civil lawsuits for breaches of fiduciary duty. Formal policies prove useful in case of a DOL audit or participant litigation. Ensuring that any governance policy’s suggested measures are carried out in practice is crucial.
Stay in step with changing governance best practices by maintaining documents addressing six major plan governance issues with well-thought-out and updated policies.
Investment Policy
An investment policy is a written statement that provides investment managers and other plan fiduciaries responsible for plan investments with guidelines or general instructions concerning investment management decisions, including proxy voting. Creating and adopting an investment policy is an exercise of fiduciary responsibility, subject to ERISA’s fiduciary duties. Although the requirement to have an investment policy statement is not codified in ERISA, the DOL views such a policy as evidence of prudence and part of the “documents and instruments governing the plan.”
Data Security Policy
A retirement plan-specific data security policy’s main objective is to build a solid basis for a process workflow. The workflow and policy are designed to bring the plan’s oversight procedures into compliance with the DOL’s recommendations. (The DOL’s routine plan audits ask for a document describing those procedures.) The majority of employers do not have a DOL-compliant subset of their enterprise-level cybersecurity policy. Consequently, a plan’s fiduciary committee bears the responsibility for creating a policy for the plan, ideally in collaboration with the organization’s IT executive.
Loan Policy
An effective loan policy promotes incentives to discourage employees from taking out loans against their retirement funds.
Conflicts of Interest Policy
ERISA abhors conflicts of interest. In response, a conflict of interest policy is meant to help ensure that the organization has a procedure in place under which the affected party will inform the fiduciary committee about all the pertinent details regarding the issue when actual or prospective conflicts of interest develop.
Surprisingly, ERISA does not require employee benefit plans to be free of conflicts of interest. Nonetheless, it does demand that the fiduciaries look for conflicts and if any are found, decide whether they are acceptable. (Be sure to document the deliberations that led to the conclusion.)
Missing Participant and Uncashed Check Policy
Four major topics comprise the makeup of this policy.
- Mandate accurate census information for the plan’s participant population.
- Define participant communication strategies.
- Describe how to conduct missing participant searches.
- Document the procedures followed, and actions taken.
Qualified Domestic Relations Order (“QDRO”) Policy
A QDRO is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant.
A domestic relations order can be a QDRO only if it creates or recognizes the existence of an alternate payee’s right to receive or assigns to an alternate payee the right to receive all or a part of a participant’s benefits. The QDRO policy stipulates the methodology for making that determination.
Working with an EBP’s committee and legal cousel, Roland|Criss designs and monitors procedures that ensure compliance with a plan’s governance policies.
