2-Service your 401k Clients

6 Strategies for Building a Strong 401k Committee

by Sharon Pivirotto | Follow Me on Twitter Here

Do you have a strong 401k committee or are you looking to set up a 401k committee?

There is so much great information online to help you set up and manage a 401k committee – in the last several months alone I’ve seen over 50 articles on committee best practices come through my inbox.

To save you time, below you’ll find six of the best articles I’ve found for building a strong 401k committee filled with common (and not-so-common) strategies to consider.

1. Best Practices for Setting up a 401k Committee

When you’re just starting out, knowing when to set up a committee, who should be on the committee, how often to meet, and what to put on the agenda are the essentials elements you need to understand. You’ll find this key information in an article found here on the 401k Best Practices blog.

2. Naming the Committee in the Plan Documents

One key way to “Reduce Exposure to 401k Plan Class Action Litigation” is to make sure your board members don’t take more fiduciary liability than necessary and in this article by Pillsbury Law, you’ll find guidance for setting up (or amending) plan documents to properly name the correct party as the ERISA Plan Fiduciary.

3. Building the 401k Committee Charter

When you set up a committee, one of the first steps is creating a formal Committee Charter and there are some key things you want to ensure your charter addresses. In this article, found on the NAPA website, you’ll find a list of key questions your committee charter should answer.

4. What a 401k Committee Member Should Know

Committee members should fully understand the responsibility and liability associated with being on the committee. This article by NAPA outlines 4 things plan sponsors should know and includes a suggestion for a formal “onboarding” process for plan committee members.

5. Training the 401k Committee

Plan sponsors don’t know what they don’t know… and as a 401k plan adviser, you can help them with initial and ongoing training on key fiduciary topics. In this article found on the PLANADVISER website, several top 401k plan advisors discuss their best practices on the timing, topics, and tips for effective 401k committee education.

6. Tips for Managing Retirement Plans

In this article on the PLANSPONSOR website, you’ll find 5 Time-Tested Guidelines for Effectively Managing Retirement Plans. Discussed are best practices and recommendations that are often overlooked, which can lead to deficiencies in retirement plan management.

The information above provides a pretty comprehensive strategy for both setting up and managing a strong 401k committee.

Share it on Twitter or LinkedIn and tag me (@sharonpiv) and let me know what else you’d add to this list to round it out.

Best Practices for 401k Committees

by Sharon Pivirotto | Follow Me on Twitter Here

This Article Highlights Industry-Standard Best Practices for 401k Committees…

Those individuals responsible for the management and oversight of an employer-sponsored plan have personal liability according to the Employee Retirement Income Securities Act of 1974 (ERISA), because they make decisions on behalf of plan participants and their beneficiaries.

Helping your clients set up a committee to clearly define and document a process of plan oversight is an effective way to help them limit the liability associated with managing a 401(k) plan, and provide tremendous value.

Plan Oversight by Plan Size

Many companies and benefit plans are small enough that creating a formal committee for plan oversight is not a viable option. As companies grow and plan assets increase, formalizing the committee structure makes more sense.

Depending on plan size, you might even consider helping your clients form one committee to oversee the administration of the plan, and another to oversee the investment responsibilities required. Some companies will often form a third committee for decisions that are considered “settlor functions” (company and/or business related decisions which are not subject to a fiduciary standard of care).

In the image above, you’ll see that for plans under $2 million in assets, there is rarely an investment committee. In fact, the Owner is typically the sole decision maker. Although sometimes, they get input from the CFO, COO and/or HR (as those roles are added to the company).

For plans $2 million to $50 million, an investment committee is common and often the committee members are appointed by, and report to, a board of directors.

And for plans over $50 million, this is where it’s not uncommon to see an investment committee and an administrative committee, and as the plan grows, a separate committee for settlor functions (and all typically have oversight from a board of directors).

Best Practices for 401k Committees

Forming an investment committee is optional and each committee set-up should be structured around the company’s capabilities and needs.

That being said, here are some basic suggestions for setting up and running an effective committee.

Committee Demographics: When setting up an investment committee, members are most often senior management personnel from the areas of human resources, finance, and operations.
Committee Requirements: There is no specific job title or experience requirement for an effective committee member. However, it is essential that members are willing to fully understand the roles and responsibilities of the position, and commit to working together in the best interest of the plan participants and their beneficiaries.
Committee Understanding: Each member should be educated on the basics of ERISA including fiduciary duties, plan procedures, investment review guidelines, and plan documents.
Size of Committee: Five to seven members are optimal. It becomes difficult to get anything accomplished with too many members and with too few, there is not enough perspective. Having an odd number helps prevent voting ties.
Frequency of Meetings: Committees generally meet quarterly, unless the situation warrants more frequent or less frequent meetings.
Committee Structure: It’s a best practice to appoint a Chairman to run the meeting and a Secretary responsible for keeping minutes and serving as the official custodian of the plan documents and committee records.
Formalization: Formalizing the committee is important to outline the responsibilities of all members and investment fiduciaries and is typically done through the use of a document such as a committee charter or committee by-laws.
Fiduciary Acknowledgement: All committee members should acknowledge their appointment to the committee and fiduciary status in writing, if they have voting rights on the committee.
Documentation Practices: Meeting minutes should be documented including any decisions voted on and documentation should include what items were evaluated and reviewed when making decisions.
Consistency: An agenda should be followed for each meeting to provide a consistent process for reviewing key items.

Regardless of whether a company sets up a formal committee or not, a basic set of guidelines can help plan fiduciaries understand their roles and help ensure participants’ interests are put first in all plan decisions.

Fiduciary Formalization Flow Chart

The following flow chart follows a process that can help plan fiduciaries understand, formalize, and manage their responsibilities with documentation that demonstrates the decision-making process.

This chart can be summed up in three steps:

Identify all fiduciaries and have them acknowledge this position in writing.
Create a formal process for helping fiduciaries understand and document their responsibilities.
Ensure committee members engage in a proactive, organized process that is documented.

If you can help your 401k clients with the steps outlined below, they’ll be better prepared to demonstrate the prudent management and oversight of their plan. (Samples of all the documents listed below are available in the Investment Committee in a Box Complete Kit found here.)

Understand who is a fiduciary (provide fiduciary education)
Identify plan fiduciaries (having an internal fiduciary worksheet would help to document this)
Have all fiduciaries acknowledge their role (with a formal acknowledgement letter or in their service contract, depending on the role)
Make a decision to formalize the committee structure (see step 9)
Plan for committee turnover (you should have a process in place to have exiting fiduciaries sign a resignation later and ensure they have an acting replacement in place to pass the fiduciary responsibility to – or according to ERISA, they are still responsible)
Provide committee members with member packets (this should include the documents that follow along with the Summary Plan Description, prior meeting minutes, and some fiduciary education)
Adopt a code of ethics (doesn’t have to be complicated)
Adopt a conflict of interest policy (this also helps educate fiduciaries on what’s prohibited, what could be a potential conflict, and how to avoid conflicts)
Adopt committee bylaws (or committee charter) to formalize the committee and set the ground rules of how the committee will function
Meet regularly (often committees meet monthly, quarterly is more common, or it could be semi-annually if the plan is still small)
Follow an agenda
Document meeting minutes (and all reports reviewed, decisions made, and the reasons for those decisions)

If you enjoyed this article, you might also like:

6 Steps You Must Include in Your 401k Service Process

by Sharon Pivirotto | Follow Me on Twitter Here

Add Value and Keep the Competition Out with a 6-Step 401k Service Process

In an increasingly regulated and competitive 401k industry, advisors are always looking for ways to bring more value to plan sponsor clients.

By differentiating your services and demonstrating processes and procedures that your competition might not have covered, you can stand out from the competition and bullet-proof your existing book of business.

Below, I’ve listed six areas where 401k advisors can change, modify, or enhance your current process to be more competitive and offer more value.

ONE: Define Goals and Objectives

Start by helping plan sponsors clearly define their goals and objectives for offering a company-sponsored retirement plan.

In order to gauge the success of the plan, and for you as an advisor to offer real value, it’s important that plan sponsors articulate their main objectives. This will help you understand the financial commitment the company is willing to make, how to best structure the plan design, and how focused and engaged they’ll be in the management of the plan.

TWO: Identify and Formalize Fiduciary Roles

Next, help plan sponsors identify those individuals who have fiduciary responsibilities and liability – and help them understand what exactly that means.

There are a number of ways to offer value in this area, such as providing sample documents for setting up a formal investment committee, fiduciary acknowledgment letters, and basic fiduciary training.

THREE: Stress the Importance of an IPS

Plan investment selection and monitoring is an area where most advisors have a pretty good process in place, but is still an area where shortfalls exist and where advisors can add tremendous value.

If a plan does not have an investment policy statement (IPS) or some written roadmap for the management of the plan investments – they should.

Finding an outdated or un-executed IPS is not uncommon. A simple agenda item at the annual plan review to pull, review, and update the IPS is easy enough to offer, but is often overlooked.

FOUR: Benchmark your own Fees

Ensuring fees and services are reasonable and necessary is a key fiduciary duty under ERISA. The ability to demonstrate reasonableness extends to any provider paid from plan assets (including you, as the advisor).

When we ask the question in our training programs, we typically find that more than one-third of advisors have never benchmarked their own fees for their existing clients.

The Fee Benchmarker. Enough said.

FIVE: Build an Effective Employee Communications Program

Because employees are the main beneficiary of a successful employee benefit plan, building an effective participant communication program is essential (and a great way to add tremendous value).

Leverage the resources of service providers, customize the program for the specific needs of the plan, and track the success and effectiveness of the communications program by running a baseline participant success report.

Investment Horizons or Perspective Partners both offer great plan-level reports identifying over-concentration, diversification, retirement readiness percentages, etc.

SIX: Head off Operational Compliance Shortfalls

Finally, on the plan administration side, providing a simple operational compliance checklist can head off a lot of common 401k administration shortfalls.

The IRS website has a checklist and I’m sure there are many others.

So there it is. Six things you can do to provide tremendous value to your plan sponsors clients.

I actually hope you’re already doing these things because guess what?

Years ago when I first created this list, these things were only being done by the top advisors in the 401k industry. Not so anymore. Now this is the standard, minimum set of issues you should address with you 401k clients.

If you want to compete in the 401k industry and grow a successful and compliant 401k business, find ways to integrate these items into your practice.

To learn more about these six issues including the regulations, best practices, and resources surrounding each, check out the PPC Program offered by fi360 – A Broadridge Company.

401k Service Models: The Complete Guide

by Sharon Pivirotto | Follow Me on Twitter Here

The Challenge

How can you help your 401k clients meet the minimum standards of prudence that ERISA imposes, regardless of plan size?

It’s a common challenge…Small plan clients generate less revenue and typically don’t want to be as involved in the full suite of education, documentation, and hands-on services that a larger 401k client might embrace. In fact, most would just prefer to run their business and know that their plan is being handled by the providers engaged on the plan.

As you move up-market, you have to provide a more robust suite of services in order to be competitive, provide the additional support larger plans need, and keep your competition out.

But how do you create a service process that’s appropriate for the market you’re in?

There is no right or wrong or one size fits all service process. Depending on your experience, resources, background, capabilities and market, your service model might be simple or comprehensive, normal or unique.

What matters is that you’re able to provide services that help plan sponsors and participants run a successful and compliant plan, at a fee that is reasonable.

As you know, the requirements under ERISA apply to all covered plans, irrespective of the number of participants, size of the company, or assets in the plan. There are certain minimum requirements that must be followed and there are some ways that you, as the 401k advisor, can provide support.

Minimum Required Elements

First, it’s important understand the rules and what’s required to demonstrate prudence, then to define a minimum level of service and documentation needed as a starting point.

Regardless of plan size, every retirement plan should have, at a minimum, these basic elements in place in order to demonstrate a sound fiduciary process:

Goals & objectives clearly defined
Fiduciary responsibilities defined, understood, and acknowledged in writing
Written, formalized plan to manage the investments (Investment Policy Statement)
Periodic investment monitoring documented
Periodic review & benchmarking of service providers documented (services and fees)
Plan compliance file centralized
Participant success program in place
Proactive service model in place

Segment & Determine Delivery Options

Next, once you’ve determined what all clients should have on file, you can identify how to best deliver the information and services based on the time and resources available. (Translation: How much time you’re willing to spend and they’re willing to give based on plan size and revenue).

If your average plan size is one million dollars, your service model will look quite different than that of an advisor in the 50 million dollar market or above.

It’s helpful to identify the various “segments” of the market so you can define a more specific, effective, and efficient service model for each. I’ve seen several ways to define the common segments but the most common are:

3 Segments
- Small Market (under 3 million)
- Mid Market (3-20 million)
- Large Market (20 million+)
5 Segments
- Micro (Under 1 million)
- Small (2-10 million)
- Medium (10-50 million)
- Large (50-250 million)
- Supersize (250 million+)

There are many ways you could define a segment of the market. You’ll find that even in the Service Model Strategies Guide I developed that you can download at the end of this post, I use two alternative segmentation examples then those listed above.

It’s not so much a matter of HOW you choose to define the different segments of the market, but THAT YOU DO segment your audience and determine, based on your service and fee schedule, what is the most appropriate method of delivering the agreed upon services.

Now that we’ve both identified the minimum required elements all plan sponsors must cover, and segmented clients by assets, here is an example of how to plan out the best way to help your clients document the required elements, and what additional services or documentation might be part of your service model for larger plans with more complex issues.

Systematize

Next, it’s important to evaluate the best way for you to manage your business and implement a process that allows you to cover each item in an efficient manner.

As I mentioned in my last post on how to conduct a 1-hour annual plan review meeting, while a plan sponsor is responsible for demonstrating prudence in all areas of compliance, it’s not a requirement, or a good idea for that matter, to try to cover it all during a 4-hour once-a-year meeting.

If you take the required elements (by category – investment due diligence, plan administration, participant communications, fiduciary responsibilities, and provider due diligence) and try to cover all review and documentation requirements at once, you may as well schedule an individual annual plan full-day workshop for each client.

A better method is to look at addressing one key element each quarter over the course of a year, leaving just one or two remaining items to cover at the annual plan review meeting.

If you cover the same topic in a quarter, for ALL of your clients, then you start to create efficiencies as you systematize your service model.

Here’s an example of a high-level overview of this concept:

So, depending on the market you’re in, you might implement a service model that looks like this:

(There are examples for 4 different service models in the Service Model Strategies Guide)

Graduate Clients to the Next Service Schedule

As your 401k client base changes (plan assets grow, number of participants increase, plan complexity increases, committees get formed, additional providers are retained, etc.) consider what additional documentation should be on file, what additional services might be needed, and what changes should be made to the fee structure to ensure continued reasonableness.

If you’ve done the work of segmenting your clients, defining the minimum level of service for all clients and mapping out what additional services you’ll add as plan assets grow, it becomes easy to shift your clients to the next service schedule once they reach the predetermined milestones.

Simple enough, right? You got this.

Get Your Copy of the Service Model Strategies Guide

To make it easy for you – I’m giving you access to the Service Model Strategies Guide that I developed that has been one of the most popular bonus resources on this blog.

Grab your copy of this valuable resource here.

The 1-Hour Annual Plan Review Meeting (Yes, It’s Possible!)

by Sharon Pivirotto | Follow Me on Twitter Here

It’s that time of year again! 1^st quarter always seems to be the best time to have an annual review meeting with your 401k plan clients since shortly you’ll be receiving year-end data and running the customary investment due diligence reports.

In order to help your clients have a successful and compliant plan, every year it’s important to review certain aspects of the plan to monitor plan compliance and document how well the plan is being managed in accordance with regulations and guidelines. The trick is to not overwhelm or overload your plan sponsors with a 4-hour plan review meeting (yes, it happens).

So, what should you cover with your clients at the annual plan review meeting?

The following outlines the basics four items you should cover during your typical annual review meeting:

FIRST: Review the prior year activity.

Review the actual services you provided to the plan or what was done on the plan from a plan management perspective. This is a great opportunity to reinforce and remind your clients of the value you bring to the table. Here’s an example of how you might present the activity on the plan:

SECOND: Review and update the Investment Policy Statement if necessary.

The easiest way to increase liability on a retirement plan is to have an IPS and not follow it. The annual review meeting is the best time to pull out that document, review what the guidelines are for the management of plan assets, and verify the plan is actually being managed in accordance with those guidelines. If there are any changes to the plan, asset classes held, etc., that might warrant an update of this document, this is the time to identify and update the IPS if needed.

NEXT: Review plan investment performance.

Depending on plan size, this might be an annual event or part of an ongoing quarterly service. Regardless, this is an opportunity to ensure that the investments in the plan remain suitable and appropriate for the plan participants. Any discussion regarding plan investment performance, benchmarking, or changes needs to be fully documented since ERISA’s test of prudence is one based on process and not performance.

FINALLY: Implement a success timeline.

This simply means, ensure that you have a proactive service schedule in place and you and your clients know what that looks like and what to expect and when in the new year. By scheduling out key management events and customer service interactions, you demonstrate a reliable process and create a more professional approach to managing your business and client expectations.

ADD ON: Provide education surrounding fiduciary responsibilities.

In addition to these four key objectives, I’d also highly recommend that you provide some form of education or information that can help plan sponsors understand their responsibilities, even if it’s a leave-behind-piece like the Department of Labor’s guide “Meeting Your Fiduciary Responsibilities.”

But what about everything else?

Now you might be asking, “But what about benchmarking and plan expense reviews, participant education, service provider monitoring, fiduciary education, and all the other stuff plan sponsors are supposed to document?” (NOTE: If you’re not asking that, you should be…)

Don’t worry. In my next post I’ll provide you with THE MOST USEFUL resource you’ll ever get to help you create a service schedule that covers all of those key areas. I’ll even break it down by plan size because if your average plan size is one million dollars, your service schedule will look much different than the advisor that is servicing plans with an average asset size of twenty million dollars. (Click here to read the follow-up post titled: 401k Service Models: The Complete Guide)

Just know that you don’t have to cover everything all in one LONG, annual review meeting. There are better and more efficient methods for helping plan sponsors document their key plan management responsibilities.

The annual review meeting is a great way to ensure plan sponsors understand and document oversight of the plan investments and also identify and understand the value of the services they’re paying you to provide (especially if you want to create loyal, raving referral sources.)