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When acting as a trustee for your company sponsored 401(k) or other ERISA retirement plan, you are accepting the role of “fiduciary”. This means that not only do you have the responsibility to manage the administrative tasks associated with the plan, you also have to act in the “best interest” of your employees. What does that mean?

Recently, there has been a lot of commotion about the use of the words “fiduciary,” and “best interest,” as the Securities Exchange Commission (SEC) lobbies for new clarifications(1). The SEC proposes to hold a broker-dealer or investment advisor accountable for “best interest” in the following way:

“when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer . . . ahead of the interest of the retail customer.”

When we consider “best interest” in its broadest definition, which is always putting the interests of employees ahead of the interests of the Plan Sponsor, then it is our interpretation that “best interest” responsibility is owned by the trustee(s) and can be shared with the retirement plan’s selected investment advisor. So, choosing the right advisor is critical. The trustee’s delegation of authority or responsibility to an investment fiduciary (in this case the advisor) is a fiduciary act and for this reason some responsibility is always retained by the Plan Sponsor.

The trustee (acting for the Plan Sponsor) has the fiduciary duty to be involved in the selection process and to weigh the options carefully prior to making a decision that will affect the company’s retirement plan and its investing employees.

So how can you manage your company’s liability and while at the same time putting the best interests of your employees first? Here’s a simple Retirement Plan Sponsor Checklist to make sure you are covering all your “fiduciary” and “best interest” bases.

1) Ask questions.
To ensure due-diligence in selecting an investment advisor for your employer-sponsored plan, you should interview several advisors and ask them these key questions:
a. What’s your experience in retirement plan management?
b. How are you compensated for managing the plan?
c. What’s your process for selecting, monitoring, and replacing the investments in the plan’s fund line-up?
d. What is your plan for providing employee education and one-on-one investment guidance?
e. How often will you review the plan and suggest changes?[/slide]

2) Communicate with your employees.
There is no such thing as too much communication when it comes to your company’s retirement plan. After you have selected the investment advisor for your plan, keep your employees informed. To do this, you may ask for help from the investment advisor. They should have turn-key materials for communicating information about the plan and the underlying investment options. Make sure your employees understand when they can enroll in the plan, how to access their accounts and make changes, when they can meet with an advisor for individual meetings, and whether there is an employer match for the plan. Send emails and mailers, make flyers, and reiterate details about the retirement plan at company meetings.

3) Provide opportunities for employee education.
Getting your employees enrolled in the retirement plan is only half the battle. Making sure they have continuous and regular opportunities to be educated on investing and retirement saving will provide an added level of security knowing that you are acting in their “best interest.” If offered by your selected investment advisor, a series of seminars on “Financial Wellness” could be beneficial to help employees understand financial concepts beyond retirement planning. Educated employees contribute to a positive morale, which influences the success and productivity of your business in general.

4) Review & Re-evaluate Your Plan.
Choosing your advisor, plan design, and investment lineup are not a one-time decision. Your plan and its investments should evolve over time to continue to serve the best interest of the business and its employees. Make sure you build a relationship with your plan investment advisor to meet at least annually to review the plan specifics and make changes as needed.

Talk to your investment advisor about any changes in the financial industry that may affect your employer-sponsored retirement plan. Be sure to ask them about opportunities for improving the education, communication, and administration of your plan. Together, you can serve the “best interest” of your employees as they address their future retirement needs.

(1) https://www.sec.gov/news/speech/speech-peirce-072418