Companies Need to Review and Maintain Their 401(k) Plans

Depending on the size of your company and your qualified retirement plan, many of the plan functions are handled by third parties – administrators, consultants, recordkeepers, and investment fiduciaries, among others.

There is no shortage of advice you can secure for your plan that will help the HR department with its administration and your participants with their investments.  But who is watching out for the company as plan sponsor?

Although plan administrative and fiduciary functions may be well-handled by plan administrative committees and advisors, there are corporate (or “settlor”) functions that are sometimes neglected.  Generally, the company is the plan sponsor, and it is responsible for making decisions regarding creation, amendment, and termination of the plan.  When making these settlor decisions, the company’s decision-makers do not owe a fiduciary duty to the plan or its participants – they are business decisions.  The design of a plan is up to the company, and it is free to use cost and other considerations when making those decisions.

These settlor decisions involving plan design and amendments need to be made by those responsible for company management, such as a corporation’s board of directors or managers of a limited liability company.  As company decisions, they need to be properly documented by resolutions formally reviewed and adopted by the board or managers.

Many companies appoint administrative committees to oversee the day-to-day administration of the plan.  These committees typically serve in a fiduciary capacity and manage the plan’s administrative and investment functions.  (In a less desirable scenario, individuals may take on these fiduciary functions without full authority and oversight by the company’s management, but that is a blog for another day.)  To help a committee perform its duties, many companies adopt formal rules of procedure to guide the committee members.  These rules, also called charters or bylaws, provide a framework for the committee’s use in discharging its duties, including guidance on when to consult company management.

The committee’s decision-making process needs to be documented in meeting minutes or notes that are made available to company management.  Proper documentation helps the fiduciaries fulfill their responsibilities, and helps the company managers fulfill their oversight responsibilities.  It is important that major decisions of an administrative committee be reviewed and approved by the company’s management.  The committee should not make business decisions that are the responsibility of the company.

The required oversight takes some effort on the part of company managers, but it can protect the company from future liability.  In short, those who are responsible for managing the company need to ensure they are also managing the company’s qualified plan.

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