Sponsors of large retirement plans have no shortage of compliance responsibilities. But sponsors that manage compliance with strong governance practices are thinking more strategically.

Strong plan governance does so much more than help you satisfy regulatory requirements. It also helps control costs, reduce fiduciary risk, build trust with participants, and — as we’ll talk about later — make the audit process much smoother.

If you’re ready to take a more strategic approach to plan management, you should be asking yourself two questions:

• How do we run a well-governed plan?
• How do we demonstrate that we’ve been running a well-governed plan during an audit?

Let’s start by answering the first question.

Retirement Plan Management: Best Practices

A well-governed retirement plan requires you to have eyes on every aspect of plan management, not just once, but consistently throughout the year. Here are a few best practices that will help you build and maintain a strong retirement plan that’s audit ready.

Stay compliant with governing bodies.

Noncompliance with ERISA, the Department of Labor, or the IRS can jeopardize the plan and create significant administrative challenges. So let’s focus there first. While we won’t get into an exhaustive list of compliance requirements, here are some of the most crucial:

• Form 5500 Filings: Form 5500 is the plan’s annual informational return. Make sure yours is accurate and filed timely.
• Participant Notices: Retirement plans are required to provide a variety of participant disclosures. These generally fall into three categories: (1) initial notices provided when an employee first becomes eligible or joins the plan; (2) recurring notices provided annually, quarterly, or on another regular schedule; and (3) event-driven notices required when the plan changes or other triggering events occur.
• Plan Testing: You’ll need to test your plan annually for things like nondiscrimination, contribution limits, and whether the plan disproportionately benefits highly compensated or key employees.
• Timely Deposits: Deposit participant elective deferrals and loan repayments into the plan trust as soon as they can reasonably be segregated from the employer’s general assets.

Question and review plan design regularly.

How your plan is designed at its onset is important, but you can’t just set it and forget it. You need to periodically review your plan’s features. Some things to review are:

• Employer contributions: You want your matching or profit-sharing elements to remain competitive yet affordable.
• Automatic features: Even if your plan is not required to have auto enrollment and auto escalation features, you may consider adding them, as it could increase participation and improve outcomes for participants.
• Loan and distribution provisions: Review the plan’s loan, withdrawal, and distribution features regularly to ensure they continue to meet participant needs, reflect how the plan is actually administered, and do not create unnecessary compliance or administrative risk.
• Eligibility and catch-up contributions: It’s possible your participant makeup or their investment behaviors have changed since your plan was first established. You want eligibility requirements and catch-up contribution options to meet the needs of participants today.

Monitor plan fees.

One of a fiduciary’s primary responsibilities is ensuring plan fees are reasonable. The lowest-cost option isn’t always the best choice, but you must document your process for evaluating fee reasonableness and show that you’re acting in participants’ best interests. You can do this by benchmarking plan fees against comparable plans, seeing if lower-cost alternatives are available, and tracking expenses accurately.

Review investment lineup.

Have a process for selecting, monitoring, and replacing investments. The first thing you should do is to establish an Investment Policy Statement (IPS). This document outlines your goals, asset allocation strategy, and risk tolerance. From there, you can review whether existing investments align. If they don’t, you can replace them with different options — those that are better suited to the needs of participants, that better fit risk preferences, or that have better performance records.

Educate employees.

Sending participant notices is the bare minimum. Help employees make informed decisions by providing education in multiple forms. Some employees will understand their options with a simple PDF document, but others would learn better from a live webinar or from a one-on-one meeting with an investment advisor. You can even survey employees to better understand which education channels they prefer.

Establish strong oversight.

Large retirement plans tend to spread oversight among a handful of groups:

• Plan Sponsor: That’s you! Even if you delegate oversight duties to others, you’re ultimately responsible for overseeing the plan.
• Retirement Plan Committee: While optional, a retirement plan committee can manage most oversight duties. This committee won’t necessarily perform administrative tasks to keep the plan running, but they will ensure those tasks get completed.
• Named Fiduciaries: Named fiduciaries are typically those in the retirement plan committee, but they might also be an executive at the company, or the employer itself.
• Service Providers: Third-party administrators, investment advisors, auditors, and attorneys all play roles in overseeing the performance of a retirement plan.

Demonstrating Good Governance During an Audit

The governance practices you use to manage your retirement plan will directly affect how smoothly your audit goes. Show auditors that your policies and procedures are strong by:

• Preparing yourself for the audit.
  As the audit is approaching, request a timeline from your auditor so you know what information they’ll need and when. This prevents unnecessary delays in testing.
• Staying organized.
  Many of your governance procedures are monitoring, checking, and assessing. Keep good records of the discussions you had, the rationales you used, and the conclusions you came to, even if no action was taken.
• Establishing a point person.
  Choose someone who understands the plan’s governance procedures in detail. They’ll be the right person to answer questions auditors might have.

A successful retirement plan audit is closely tied to strong governance practices. That’s why taking the time to establish those policies and procedures — and spending time following them throughout the year — will be well worth it. Contact a Meaden & Moore professional today to learn how we can help strengthen your retirement plan governance and support a successful audit.