Amid rising liability concerns, company executives and internal plan committees are taking over the responsibility of appointing fiduciaries, according to Towers Perrin’s 2008 Survey on Qualified Retirement Plan Governance. According to a press release, 54% of respondents from U.S. companies said selecting a fiduciary is the responsibility of a board member, compared with 71% who said the same in 2005.
Towers Perrin points out that under Employee Retirement Income Security Act (ERISA) guidelines, whoever appoints a fiduciary has a duty to monitor the appointee for continued compliance and faces potential liability in the event that the appointment of the fiduciary is questioned. The wide-ranging responsibilities of a typical board or board committee may result in too little attention being paid to the duty of fiduciary monitoring.
“Acting as an ERISA fiduciary carries with it the potential for civil liability,” said Lisa Alkon, a principal in Towers Perrin’s Retirement practice and coauthor of the survey report, in the press release. “With the rise of lawsuits and regulatory actions, it is only prudent for directors and their organizations to take certain defensive measures that start with plan governance.”
Plan Monitoring and Review
Both the Internal Revenue Service’s (IRS) and Department of Labor’s (DoL) scrutiny of compliance violations in the management of many benefit plans is reinforcing the need to regularly evaluate operational compliance. Towers Perrin’s 2008 Survey on Qualified Retirement Plan Governance found that 37% of respondents said their companies review operational compliance of qualified plans annually, but surprisingly 21% note their firms had not—or were not aware if they had—performed the review.
When it comes to review of 401(k) fees, less than half of the survey respondents (47%) said they look at them once per year.
According to a Towers Perrin press release, 29% of respondents said that the board or a board committee reviewed reports from benefit committees on an annual basis, and the same percentage note they reviewed reports “as needed.” Seventeen percent said they reviewed reports quarterly, while 14% indicated they did not know how often benefit reports were received and reviewed.
The Towers Perrin survey results indicate that, although great strides have been made in fiduciary training since the initial survey conducted in 2004, organizations still have work to do to get their fiduciaries fully up to speed. While 41% of respondents said that “all” of their fiduciaries have undergone training, 31% said that only “some” have. Twenty-eight percent of organizations either have fiduciaries that have not been trained or do not know if they have received training.
In 2004, 39% of organizations indicated their fiduciaries had received training, and 61% had either not provided training to their fiduciaries, or did not know.
In addition to enhanced training programs, Alkon recommends:
- establishing, documenting, and maintaining a clear and appropriate plan governance structure;
- having—and following—written procedures;
- ensuring plan documents and other supporting documentation are consistent and current;
- performing, at least periodically, an operational compliance review of all benefit plans;
- maintaining and periodically revisiting fiduciary insurance policies.
Nearly three-fourths of survey respondents said their organizations carry a separate fiduciary liability policy, or a rider to their liability policies, according to the press release.
A total of 126 respondents participated in the Web-based survey, conducted in June. Two-thirds of those surveyed are from companies having between 2,500 and 50,000 employees; 86% are from parent companies headquartered in the U.S.