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Plan Sponsor “Dos” for Managing Your Retirement Plan Investments

As a small business owner, you’re likely juggling multiple tasks, not the least of which includes all of the day-to-day responsibilities of running your business – payroll, accounting, sales, inventory, hiring – the list goes on. Managing your company’s retirement plan may not be high on your list of priorities. However, neglecting your retirement plan is not a wise strategy.

Your role as a retirement plan advisor is to provide a competitive benefit and good investment options for your employees. Doing so can help you attract new talent to your business while improving employee satisfaction and retention. A significant part of your role as a retirement plan sponsor is making sure that the fees are reasonable for the investment options offered in your plan, and that you – or an expert you hire – regularly monitor and assess the investment performance and suitability.

If you’re not sure how to do that, we invite you to keep reading. In this article, we’ll break down the top “dos” for retirement plan sponsors when it comes to investment selection and monitoring. The following tips will help you protect your business while offering an attractive and competitive retirement savings benefit for your employees that is designed to help them achieve financial security in their post-work years.

What is a retirement plan sponsor?

A retirement plan sponsor sets up and manages a retirement plan for the benefit of a company’s employees. In that role, you have many responsibilities; including making decisions for the retirement plan on behalf of your employees. Also, you are the plan’s “fiduciary” –  meaning you have a personal and legal responsibility to make decisions that are in the best interest of the employees participating in your company’s retirement plan.

In addition, you’re responsible for establishing the parameters for the plan. Who is eligible for the plan and how much will you (the employer) contribute? Will you offer profit sharing? You are responsible for making sure that your retirement plan fees are reasonable and that there are no conflicts of interest. You must also ensure your company’s retirement plan complies with current regulations.

Retirement plan sponsors have many responsibilities concerning investment selection and monitoring of investments. Even if you choose to outsource that responsibility to a third party, you still maintain your fiduciary obligation. If you fail to fulfill any of these responsibilities, you could be held personally liable for any resulting damages to participants, even many years into the future. That’s why it’s critical that you understand your responsibilities as a plan sponsor and how to fulfill them.

In this two-part series, we’ll explore the dos and don’ts for retirement plan sponsors when it comes to managing your plan’s investments. Here in Part I, we’ll cover the “dos.” We’ll discuss the “don’ts” of retirement plan investment management in our next articles.

Here’s What You Should Do:

Develop an Investment Policy Statement (IPS)

Creating an IPS is considered a best practice for retirement plan sponsors. Essentially, an IPS is a roadmap that details the plan’s investment philosophy and sets general guidelines about how the investment funds should be selected and investment menus structured. A strong IPS should also include criteria for monitoring the investment lineup and instructions for removing funds when necessary. An IPS guides plan sponsors with specific processes and policies to ensure that they are acting prudently. It can also help in the event of an Internal Revenue Service or Department of Labor audit.

Consider working with a retirement plan advisor

Beyond adopting the IPS, you may choose to hire a retirement plan advisor to help you meet your fiduciary obligations as a plan sponsor. An experienced retirement plan advisor can help protect you against legal liabilities (more detail in Part II) while enhancing your plan’s investment opportunities and assisting participants to achieve financial security.

Specifically, a retirement plan advisor can help you:

  1. Understand your fiduciary duties and/or take on or limit your fiduciary responsibilities
  2. Ensure the procedures in the IPS are being followed and up-to-date
  3. Monitor the funds in the investment menu
  4. Communicate to and educate plan participants about the investment options, their benefits, and any changes
  5. Keep your plan updated and compliant with current regulations
  6. Document actions and changes.

A retirement plan advisor can be a trusted partner in helping you fulfill your fiduciary duties as a plan sponsor and protect your participants’ best interests.

Determine your preferred level of involvement in the investment management process

When it comes to managing the risks and liabilities associated with overseeing the investments in your retirement plan, you have three options:

  1. You can have an investment manager handle it all for you
  2. You can hire an advisor as a co-fiduciary
  3. You can do it yourself.

Few plan sponsors opt to take full responsibility for managing their plan’s investments. After all, you’ve got enough to do when it comes to running your business day-to-day!

Hiring an investment manager gives a third party full “discretion” over the plan’s investment lineup. The investment manager evaluates the fund menu and monitors the funds for performance and suitability. All investment selections must be consistent with the IPS. In hiring a third-party manager, you shift the risk and fiduciary liability of managing the plan’s investments to someone else. However, it’s important to note that you maintain responsibility for monitoring the investment manager to ensure they are carrying out their agreed-upon duties.

Most small business plan sponsors opt for a co-fiduciary arrangement and share the oversight of the plan’s investments with a retirement plan advisor. The advisor can make recommendations regarding the funds in the plan’s investment lineup and when to make changes. Still, the ultimate decision-making authority remains with the plan sponsor. A co-fiduciary relationship is beneficial because a good retirement plan advisor can help mitigate a plan sponsor’s fiduciary risk while offering valuable advice in managing the plan’s investments.

The decision to hire a retirement plan advisor ultimately lies with you, but remember, the best interests of your participants should always guide your decision. An advisor can provide much-needed assistance, alleviate your concerns and confusion, and help you offer a comprehensive, competitive retirement plan that’s designed to help your employees achieve financial security in the future.

Given the level of responsibility and risk involved, you might consider working with an investment advisor with experience in small business retirement plans. At Alpha Wealth Advisors, we are experts in working with plan sponsors to manage the fiduciary responsibility of their retirement plan and the oversight of their plan’s investment options. Depending on your needs, we have the experience and local relationships to provide full or partial investment management and fiduciary support.

Providing your employees with a small business retirement plan and managing the investments inside of it is a big responsibility. If you need assistance, please give us a call. We’re happy to help!