Experts Offer a 2013 To-Do List for Retirement-Plan Sponsors

By Patty Kujawa

Jan. 23, 2013

Just like scheduling oil changes for a car, retirement benefit plan sponsors need to create a checklist of to-do’s to ensure 2013 goes smoothly, consultants say.

“All the little administrative things can trip you up, but it’s worth taking the time at the beginning of the year to address administrative issues so you don’t get huge headaches during the year,” says Sam Henson, senior ERISA counsel for Lockton Retirement Services in Kansas City, Missouri.

The investment policy statement, which includes general investment goals, philosophies and guidelines for decision-making, should be one of the first items up for review, says Lori Lucas, executive vice president and practice leader for Callan Associates Inc. in Chicago. According to Callan’s 2013 Defined Contribution Trends Survey released in January, about 63 percent of the 100 plan sponsors surveyed updated this statement within the past 12 months.

It’s a solid uptick from last year’s 55 percent, but Lucas would like to see more reviews in light of several lawsuits challenging sponsors’ ability to match this statement to the plan investments.

“A good way to think about the [investment plan statement] is that it’s a road map,” Lucas says. “It helps determine whether funds are meeting acceptable criteria.”

Another good strategy is to document everything and to keep good records, says Ary Rosenbaum, an Employee Retirement Income Security Act retirement plan attorney practicing in Garden City, New York. Plan sponsors—normally the employer who is responsible for creating and maintaining the plan—need to keep the retirement fund’s documents and amendments, as well as all decision-making records. It’s important to have a paper trail not only to defend against lawsuits but also to help clear up any possible questions with the Internal Revenue service or other federal agencies.

“It’s like taking good notes in high school. It’s just good practice,” Rosenbaum says. “Too many plan sponsors don’t understand this risk until something happens.”

Next, consultants say, is to see whether investments put in the plan years ago still make sense. Many plan sponsors rushed to add target-date funds to their investment lineup after a 2006 federal law allowed them to automatically put new employees/participants in this fund.

Lucas says what might have been a good fit when the law was passed might not work today. Demographic changes, increased assets or the elimination of a defined benefit plan may be influencing the effectiveness of the investment.

“Target-date funds have really evolved” from when they were first introduced, Lucas says. “It’s simply a matter of looking at whether it still fits in the plan going forward.”

Plan sponsors will also need to look at the automatic features in their 401(k). According to Callan’s survey, automatic enrollment peaked at about 50 percent. Now might be a good time to look at including older employees who were not enrolled when they started work or increasing the percentage they automatically contribute to the plan, experts say.

Henson points out that in the past two years, many baby boomers have realized they don’t have enough money saved to retire and are staying in the workforce longer. Automatically increasing employee contributions could increase workers’ savings rates as well as help employers better manage workforce costs, such as salaries and health care.

“We are not seeing a lot of pushback from employees when they’re automatically enrolled at 5 or 6 percent” of their pay, Henson says.

Finally, Rosenbaum says plan sponsors should be realistic about what they are able to handle and should consider outsourcing if necessary. Top management in many midsize and small companies have multiple responsibilities, and sometimes the fiduciary pieces of a 401(k) plan can be overwhelming.

“I’ve seen too many good plan sponsors go bad because they take on too much,” Rosenbaum says. “Setting up a retirement plan is a very good intention, but unfortunately if you don’t handle it carefully, it can bite you. Plan sponsors have to look in the mirror and understand what their limits are.”

Patty Kujawa is a writer based in Milwaukee. Comment below or email

Patty Kujawa is a freelance writer based in Milwaukee.

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