The National Association of Government Defined Contribution Administrators (NAGDCA) has released a brochure noting that fiduciaries of non-government defined contribution (DC) plans have come under increasing scrutiny in recent years, in part due to participant lawsuits filed against plan sponsors and the resulting media attention.
Though not a legal interpretation of government DC plan sponsors’ responsibilities under state or other applicable law, the brochure suggests these government plan sponsors take on many fiduciary duties similar to those imposed by the Employee Retirement Income Security Act (ERISA). Governmental plans are not subject to ERISA, but that does not mean they lack regulation that provides ERISA-like requirements. Governmental plans are subject to both the Internal Revenue Code as well as applicable state laws.
The brochure suggests things government DC plan sponsors do with their “fiduciary hat” on, including:
- Establishing policies and procedures for the plan;
- Administering and operating the plan in compliance with the plan document by ensuring plan policies, procedures and forms match the plan provisions;
- Keeping the plan document compliant and updated for all required changes in law;
- Developing a formal written investment policy statement (IPS) to detail the criteria to follow in selecting, monitoring and replacing the plan’s investment options;
- Monitoring the fees being charged by each investment option to ensure they are reasonable;
- Selecting and monitoring service providers, trustees, consultants and others who assist with the plan to ensure compliance with their contracts;
- Monitoring each vendor’s fees periodically and benchmarking them to fees paid by plans of similar size and complexity;
- Creating and distributing participant communications to educate participants about the benefits of the plan and increase participation;
- Educating participants about the plan’s investment options and providing the tools to help them save for a secure retirement.
Among strategies for limiting liability, NAGDCA suggests plan sponsors build the structure and framework necessary for prudent plan administration. Plan sponsors should document compliance with prudent processes. It also recommends consolidating to one recordkeeper and limiting the number of core investment options.
NAGDCA says one area critical to effective plan governance is the accurate measurement of plan effectiveness. It suggests plan sponsors monitor plan success by evaluating participants’ retirement readiness.
The brochure includes a governmental plan fiduciary responsibility checklist and can be found here.