Managing Liability

Managing Your Liability

If you are like many sponsors, you have outsourced the administration of your 401k to a firm that provides the convenience of one-stop shopping. Unfortunately, you have not outsourced the legal liability. Unless that company has said so in writing, you retain all of the liability.

Loring Ward Retirement Plan Essentials
Five Retirement Plan Essentials

How do you manage liability on your retirement plan?

There is much confusion surrounding fiduciary roles. Plan stewards are responsible for selecting and monitoring investments. However, ERISA section 402(c) allows the stewards to delegate primary authority for selecting and monitoring plan investments to a section 3 (38) investment manager. This manager is given discretionary authority over all investments and acknowledges that they are a fiduciary. ERISA section 405(d) states that fiduciaries are relieved of liability for the actions of investment managers. They are responsible for prudently selecting and monitoring the investment manager. These actions may significantly reduce the workload of the plan stewards.

How can we help?

Best practices for managing liability includes the development of an Investment Policy Statement (IPS) to select and manage the investments in your plan. The IPS should be viewed as the business plan and the essential management tool for directing and communicating the activities of the plan. An investment representative will work with the stewards to prepare and review an IPS. Once agreed upon, the IPS can help provide evidence that the stewards engaged in a prudent process,  both  initially  and/or  on an  ongoing  basis,  to  fulfill  their legal  responsibilities. As additional protection, we recommend that you have your own ERISA attorney review all plan documents.

We’ll use A Solid Foundation™, a tool that guides you through your fiduciary responsibilities.  A Solid Foundation™ takes you through several steps to review ERISA guidelines for the selection and monitoring of plan assets. It analyzes how you are currently seeking to comply with regulations and allows you to document important criteria for the management and selection of plan investments. It also helps you create a custom IPS for your plan with tools designed to help ensure it is used properly.

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