May 2018 View from the Top: Our NAPA 401(k) Summit Roundup
Industry News: Plan Litigation
The news continues to swirl with lawsuits against corporations, alleging their 401(k) plans have high fees harming employees. Such litigation has brought greater awareness to the fees being charged in plans, as well as a sense of urgency for retirement plan committees to take their fiduciary duties seriously. For example, the duty of exclusive benefit means fiduciaries must be aware of and fully understand all expenses paid from the plan – but it doesn’t end there. Expenses must also be deemed reasonable for the services provided. There is no obligation to choose providers or investments with the lowest costs; the best choice for a plan is unique to the plan’s objectives and characteristics. The most important elements for avoiding litigation over fees come in the form of a consistent process and thorough documentation.
Plan Administration: Committee Relationships
It can be beneficial to establish a committee to assist plan sponsors in the development of prudent processes for plan governance. It’s considered best practice to select a committee chair and establish a committee charter. Utilizing a committee charter to formally authorize the purpose and scope of the committee defines how committee members are selected or appointed, how often meetings occur, and the roles of any outside consultants. Understanding each party’s role, financial liability, fiduciary responsibility, and signing authority can help ease the administrative burden.
Benefits Collaboration: Health Savings Accounts
The buzz continues around health savings accounts (HSAs): they’re the link between health care and finance, but many employees still don’t understand their unique benefits. These savings vehicles provide triple tax-advantaged opportunities (tax-deductible contributions, tax-free earnings, and tax-free distributions), but few are taking advantage. Often confused with flexible savings accounts (FSAs) or health reimbursement accounts (HRAs) and their ‘use it or lose it’ rule, unused HSA funds from the current year roll over to the next year, so participants don’t have to worry about forfeiting their savings. Additionally, employees are often not saving enough to fully utilize the investing capabilities of the HSA – savings can be invested in mutual funds, stocks, or other investment vehicles to help achieve more growth in the account. Clearer education is needed to enable participants to fully engage in their whole suite of benefits.
Plan Participants: Watch Your Language!