Plan Sponsors: How Can You Minimize Risks?
The term “fiduciary responsibility” has been in the headlines quite a bit this year. Most of the discussion is around investment advisors, but the term also comes into play for business owners and executives.
Being a fiduciary means being personally liable for the prudent management of someone else’s money, so it is a serious topic that deserves attention. For business owners and executives, that high fiduciary standard applies when it comes to employee retirement plans such as 401k and 403b plans. Those who oversee these vehicles are the plan sponsors, and while the duty is often seen as administrative, the reality is that sponsors take on an exorbitant amount of personal risk.
If you are a plan sponsor, how can you best satisfy your legal obligations as a fiduciary?
AAFCPAs has provided the below guidance to ensure you are meeting your fiduciary obligations:
- Know what you don’t know. There are stringent, defined rules in place, as well as a checklist of items necessary for compliance. If you shoulder fiduciary responsibilities for your organization’s retirement plan, you should know these rules – if you don’t know what you don’t know, you risk getting into significant trouble spots. Seek advice from an independent and objective retirement plan and investment advisor. This does not mean delegate the role, as shifting responsibility does not relieve you of the fiduciary obligation.
- Design plans appropriately. Plan sponsors are required to understand the objectives of the plan and ensure that they are focused on doing the right thing for employees. This means creating a plan that is appropriate for both owners and employees and consider elements such as the vesting schedule, different types of investment options, and plan costs. AAFCPAs has 200 employees. In order to do what is best for their employees, AAFCPAs have developed 15 investment models for participants to choose from covering a range of risk profiles and ages. To learn more visit AAFCPAs.