A Path to Plan Operational Excellence

Even proactive plan sponsors can make mistakes when it comes to retirement plan administration, which can lead to costly fines. What can they do to mitigate this risk? The best step is a plan operational review. Here we discuss what’s included in the review process and how plan sponsors can get started on a path to plan operational excellence.

A Path to Plan Operational Excellence

A Serious Need

A recent article published by PLANSPONSOR Magazine emphasized the need for plan sponsors to take the administration of their retirement plans seriously. Not doing so leads to errors.

Administering a retirement plan, however, is not always quite as straightforward as expected. There’s a lot that plan sponsors need to understand and take into consideration.

Whatever challenges plan sponsors face, there’s only one way to ensure proper plan administration, and that’s by conducting a periodic review of plan operations. We call this process a plan operational review.

What a Plan Operational Review Includes

A retirement plan operational review compares the plan document and actual operational practices in order to understand the plan’s provisions, what they mean, parties responsible for execution, and how any unwritten tasks or responsibilities should be assigned.

The end goal is an improved process. Plan sponsors and their related service partners collaboratively develop an operational policy to tactically administer a compliant retirement plan. This policy should be relied upon and revisited on an ongoing basis.

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Three Steps for Getting Starting

Conducting a plan operational review is worth the effort, but it requires a focused effort. We recommend plan sponsors shape their process through the following three steps.

Step One: Review who is involved in your retirement plan administration

It’s important to identify who will be involved in the operational review process. For this reason, plan sponsors need to understand the five main groups typically involved in retirement plan administration:

1.  Plan Sponsor: The company that offers and sponsors a retirement plan for their employees and is responsible for compliance with the plan document

2.  Retirement Plan Committee: Decision makers and fiduciaries who are responsible for monitoring, evaluating, and overseeing the plan’s operation

3.  Plan Recordkeeper: Hired to administer and record keep participant accounts, track who’s in the plan, what investments they own, host a participant website and call center, and play an active role in maintaining the plan’s compliance

4.  Retirement Plan Advisor: Co-fiduciary responsible for guidance, oversight, and monitoring of the investment menu, plan operations, and plan fees

5.  Participants: Individuals who participate in the retirement plan and ultimately the ones the other groups detailed are providing services for and working in the best interest of

Step Two: Create a plan operational outline

An operational review runs smoother when it has a clear vision. For this reason, we recommend creating a plan operational outline. This outline will guide your review process, ensuring you uncover the information you need.

To begin constructing this outline, focus on the following areas:

  • Reassess plan design features and processes such as eligibility and automatic features, payroll, employee deferrals, and compensation
  • Ensure plan documents and amendments are properly dated and signed
  • Verify all plan provisions are correctly reflected in annual required notices and enrollment materials
  • Initiate a discussion with your recordkeeper and third party administrator (if applicable) to walk through plan documents, review notices, and analyze compliance testing
  • Review service providers’ contractual provisions and data privacy allowances

Step Three: Acknowledge when outside expertise is needed

Even the most competent plan sponsors can feel in over their heads when it comes to retirement plan administration. If you feel overwhelmed – even as this process begins – your best move may be turning to outside consultation such as a retirement plan investment advisor or ERISA counsel.

The reality is that retirement plan errors happen all the time. If undetected, the result could be costly corrections or penalty assessments. The team of experts at Francis Investment Counsel has decades of experience working with retirement plan sponsors and recordkeepers to ensure effective plan operation and compliance. Don’t take the risk of hesitating. Reach out to our team for guidance on your retirement plan operational review process.

Tags: retirement plan administration, plan review, plan operations, plan compliance, plan oversight

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