Connections for Success



Planes, Trains, Automobiles and… Retirement Plans?

Perhaps you recall the 1987 comedy starring Steve Martin and John Candy that involved these modes mode of transportation. But if you add in retirement plans, what could all of these possibly have in common? All of these require ongoing and regular maintenance to keep them in proper condition and running smoothly. Planes, trains and automobiles all require regular mechanical maintenance to keep them in tip-top shape, such as lubrication and regular inspections for wear and tear. They also constantly need fuel to keep them running so they may safely transport their passengers.

ERISA’s Fiduciary Standards

Let us see how all of this fits with ERISA’s primary fiduciary responsibilities:

Exclusive Benefit Rule
You might even say that regular maintenance for vehicles is solely in the best interest of the safety of your riders and passengers. That is much like a fiduciary of a retirement plan who has an obligation to carry out his or her fiduciary functions in the best interest of plan participants and beneficiaries.

Prudent Person Standard
A conscientious person or organization will examine their vehicles for excessive mechanical wear and tear and replace any parts that might cause a break down or accident. With a retirement plan, a fiduciary is obligated to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use.

Compliance with Terms of the Plan Documents
To keep your vehicle in tip-top shape, you go about your maintenance through a service checklist and manual to guide your actions with each inspection. Fiduciaries of retirement plans should be familiar with the terms of their plan and ensure that their plan is being administered in accordance with those terms. Retirement plan fiduciaries have a duty to act in accordance with the terms of their plan document and comply with such document, just like the mechanic using the service manual.

Selection of Service Providers
If you own a vehicle but do not have the time or expertise to perform maintenance yourself, you might hire a mechanic to perform your maintenance and a gasoline station to fuel it. If you do hire someone to handle these chores, you probably want someone reliable and diligent. As a plan sponsor, you may do the same and hire service providers to assist you with your plan investments and plan administration duties. Under ERISA, a fiduciary must exercise prudence in the selection of service providers and continue to monitor the service providers selected on a regular basis.

Diversification of Plan Investments
Just because you hire a mechanic or service station to maintain your vehicles, does not mean your responsibilities and duties are done. You must understand the range of services being provided by your mechanic and service station and whether or not the menu of services provides the proper maintenance. Similarly, in order to provide your participants with appropriate investments, ERISA requires fiduciaries to diversify plan investments and to review your investment selections periodically.

Going the Wrong Way

One of the funnier scenes in the movie is when Del (John Candy) drives the wrong way on the highway while Neal (Steve Martin) and Del try to ignore the pleas from another vehicle trying to tell them they are going the wrong way. They dismiss those pleas until they finally see themselves heading right at two semis taking up both lanes in front of them. Fortunately for them, it turns out okay.

As a plan fiduciary you never want to risk going the wrong way. Taking on a retirement plan is a significant responsibility with the numerous DOL standards and IRS regulations that plan fiduciaries must meet to keep your plan in compliance. If you do not follow the fiduciary responsibilities mentioned above, your retirement plan could be going the wrong way and be at risk of a DOL or IRS audit. Failure to meet fiduciary obligations can result in serious penalties and liabilities, such as personal liability, legal action and fines.

Steps to Success

There are some best practices you can take to help meet your fiduciary responsibilities. They include:

Establishing a Plan Governance Process

  • Creating written plan governance policies that define all fiduciary duties, protocols and procedures
  • Forming committees tasked with key areas of responsibility, including an investment committee to oversee investment selection and review
  • Rebidding service provider contracts regularly to evaluate whether current plan fees and service capabilities are competitive
  • Keeping detailed and proper documentation of all plan records including decisions made with respect to the plan
  • Reviewing significant regulatory filings (such as Form 5500) before their submission

Reviewing and Updating Plan Documentation Regularly

  • Reviewing and updating the plan document by establishing a process that states how the document will be created, maintained and updated
  • Creating an investment policy statement with guidelines for selecting and monitoring plan investment options and service providers

Monitoring Plan Transactions and Investments

  • Establishing processes and controls to ensure all plan transactions meet all mandated DOL and IRS rules and regulations
  • Monitoring investment performance against established benchmarks
  • Assessing the appropriateness of plan costs as part of an ongoing process

Communicating with Participating Employees Regularly

  • Implementing a process for notifying employees about plan eligibility, enrollment deadlines, contribution limits and other important plan information
  • Educating employees to help them understand the benefits of plan participation, build their knowledge of investments and take appropriate action to keep their retirement savings on track
  • Ensuring employees have access to the information they need to make informed investment decisions

Conducting an Annual Plan and Investment Review

  • Reviewing plan participation, asset flows, service quality, cost, transaction activity, participant satisfaction and investment performance periodically
  • Assessing the performance of third-party administrators, recordkeepers, investment managers and consultants, and review their agreements

Make it Right

So do not roll the dice and take the risk of going the wrong way. Keep your retirement plan well-maintained and ready to deliver the promised retirement benefits to your employees. By regularly reviewing your fiduciary duties as they relate to your plan’s operations, you will meet your fiduciary obligations.

For more information, contact your ORBA advisor at 312.670.7444. Visit to learn more about our Employee Benefit Plans Services.

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