In providing an employee retirement plan, employers and plan fiduciaries assume a number of responsibilities. An effective and meaningful governance process must be developed to ensure best practices are followed in maintaining the plan. This article discusses the three key things that this process should address.

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T
o attract and retain quality employees, employers
must provide a benefits package that includes a
quality retirement plan. In providing this benefit,
employers and plan fiduciaries assume a number of
responsibilities. Although professionals may be retained to
perform the duties associated with offering a retirement
plan, an effective and meaningful governance process
must be developed to ensure best practices are followed
in maintaining the plan. This will allow plan sponsors to
manage the legal and financial risks while delivering a high-
quality retirement program for plan participants.
An effective plan governance process will provide for
oversight protocols, identify the plan fiduciaries, develop
monitoring processes and document plan decisions. As a
practical matter, the governance process should address
1) plan compliance issues; 2) management of plan assets;
and 3) administrative concerns.
Plan Compliance
ERISA and the Internal Revenue Code (IRC) impose a
compliance burden on sponsors of tax-qualified retirement
plans. In order to meet the rules set by these statutes, a
governance plan should address the following:
• Plan document. This instrument details the terms
of the retirement program and needs to be updated
periodically to reflect discretionary changes made by
the plan sponsor or regulatory changes required by law.
• Governmental filings. These filings include Form
5500 which reports financial, investment and
operational information about the plan; Forms 1096
and 1099R which report distribution information; and
any other forms required by regulatory agencies.
• Testing. Annually, a tax-qualified retirement plan
must demonstrate that the plan does not exclude
a disproportionate number of lower-paid employees
(generally making less than $115,000) or provide
benefits that discriminate in favor of higher-paid
employees. If the plan sponsor is under common control
with other entities, these tests must be based on the
employees of all entities under common control.
• Operational compliance. It is important to monitor that
the plan’s operation is consistent with plan document
provisions.
Plan Assets
Fiduciaries responsible for the management of plan
assets are subject to the prudence standard, which
requires a fiduciary to act with the care, skill and diligence
that would be exercised by a prudent person familiar with
the matter and acting under similar circumstances. In
meeting this standard, fiduciaries must:
• ensure plan assets are diversified so as to
minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to
do so
• comply with the plan’s investment policy statement
• monitor the reasonableness of fees charged by service
providers
• ensure that the plan has sufficient liquidity
• act in the best interest of the plan participants
Administrative Issues
Fiduciaries must make sure all of the plan’s
recordkeeping/administrative issues are addressed.
Regulatory agencies, participants, the courts or other
entities may have a legal right to access plan records.
Therefore, it is incumbent on the plan administrator to
maintain historical records that include copies of plan
documents, participant notices, government filings,
enrollment forms, beneficiary designation forms, census
data and evidence of required insurance coverage.
Without an effective governing process, it will be
virtually impossible to fulfill all of the duties associated with
maintaining a tax-qualified retirement plan. Hiring qualified
professionals to assume all or some of the aforementioned
duties does not relieve the plan sponsor of their duties. A
documented process must be developed for selecting these
professionals and monitoring their performance.
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Article reprinted from Summer 2013GROWTHBIZS T R A T E G I E S
BILL KARBON
CBIZ Insurance Services, Inc.
Lawrenceville, NJ
609.895.5332 • wkarbon@cbiz.com