It is not uncommon in the retirement plan marketplace for plan sponsors to place the responsibility of investment selection on the participants in the plan. However, the fiduciary responsibility remains with the plan sponsor, who is charged with oversight over the plan. The Employee Retirement Income Security Act of 1974 (ERISA) was designed to protect participants, not the plan administrator or the plan sponsor. Under ERISA, plan sponsors are responsible for providing participants with appropriate investment options in order for them to diversify their holdings and manage investment risk. There are two very important aspects of plan management that should to be in place in order to demonstrate fiduciary responsibility related to the investment options within a retirement plan.
First is the establishment of a retirement plan committee. The members of the plan’s retirement plan committee do not need to be investment experts; however, they need to be committed to working in the best interest of the plan participants regarding the operations and the investment options of the plan.
Having a formal investment policy statement is equally as important as establishing a retirement plan committee. An investment policy statement formalizes the plan’s investment methodology, documents long term goals and objectives and establishes a framework for hiring investment managers and advisors and monitoring performance. It is essentially a roadmap for the retirement plan committee.
The investment policy statement should contain the following information:
The overall objective of establishing a retirement plan committee and an investment policy statement is to reduce the plan sponsor’s fiduciary risk. By choosing the right committee members, conducting effective committee meetings and establishing a clear investment policy, the plan sponsor will be able to demonstrate its compliance with ERISA and Department of Labor and Internal Revenue Service rules and regulations related to its fiduciary responsibility.