January 7, 2025
Strong Partnerships for a Fiduciarily Sound Retirement Plan
Offering employees a solid retirement plan can be a vital component of a larger benefit package to entice people to join your company team and stay. As with other employee benefits, retirement plans are subject to rules and regulations to adhere to as well as fiduciary responsibilities for the employer, also known as the plan sponsor. Failure to follow through on plan sponsor fiduciary responsibilities can result in penalties. January is a perfect time of year to consider those duties as we reset for the year ahead.
The Department of Labor (DOL) and the Internal Revenue Service (IRS) drive the rules and regulations for plan sponsors. Both entities expect plan sponsors to act in the best interest of the employees, also known as participants, and their beneficiaries. Greenleaf Trust works alongside the plan sponsor, as industry professionals, to ensure valid processes are in place, and plan documents are compliant. Also, assuring the processes are followed according to the plan’s documents and governmental rules, and are keeping up with industry changes, as well as a host of other retirement plan dynamics. The Greenleaf Trust team shares our expertise with plan sponsors, so they can focus on their primary business functions.
Plan sponsors, in their fiduciary role, must act judiciously when it comes to investment choices for the retirement plan. Performance of the funds is not the most crucial piece of the investment choice function. The processes in place for adding investments, or removing them, in the fund lineup is most important. Greenleaf Trust provides the Mutual Fund Due Diligence Report (MFDDR) each year to aid plan sponsors in the investment review part of this fiduciary duty. The MFDDR spells out the process for fund choices and provides, in plain language, a detailed analysis of the funds. In addition to the MFDDR, the Investment Policy Statement (IPS) lays out the approved designated investment alternatives and the qualified default investment alternatives.
When a plan sponsor wants Greenleaf Trust to be the decision maker on investment choices, Greenleaf Trust serves as the 3(38) discretionary fiduciary investment manager for the plan. Since fiduciaries have the responsibility of acting in the participants’ and their beneficiaries best interest, having an expert make and monitor the investment choices is especially important. Some plans may have a 3(21) directed fiduciary investment manager arrangement, which means the plan sponsor directs the Greenleaf Trust team on investment choices, acting as the final decision maker. When a plan sponsor chooses to operate the plan as a 3(21), they need to bear in mind, the IRS states the fiduciary is responsible for “carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters” so the plan sponsor should ask themselves if they fit that role, or if it is best to leave it to the specialists. See the full list of responsibilities cited by the IRS here: Retirement Plan Fiduciary Responsibilities from IRS.gov 08202024
As a 3(38) discretionary trustee, Greenleaf Trust is responsible for determining the mutual fund menu offerings for the plan. In this plan option, the plan sponsor does not have to evaluate, monitor, nor give final investment direction decisions. The plan sponsor is responsible for reviewing the MFDDR, annually, as it is the tool documenting the investment choice process and outlines the reason those funds are in the plan. Greenleaf Trust will reach out to our plan sponsors ahead of any investment changes, setting the stage for any removals or additions.
Your Relationship Manager for the plan offers the opportunity to do a plan review, typically, annually. This is key to performing due diligence for the plan as it is a time to go over financial summaries, investment reviews, participant participation rates, regulatory and industry updates, as well as any plan design changes.
Administering timely, accurate payroll for employees is important for any business owner. For a business with a retirement plan it becomes even more imperative because the DOL consistently states participants’ deferrals must be deposited to the plan as soon as possible following the date the funds are withheld from the participants’ paychecks. Plans that are frequently late in uploading participant deferrals may incur penalties from the IRS as frequently late payrolls must be reported on the plan’s Form 5500. The plan documents must be followed, as well. For example, if the plan is set up to exclude deferrals from bonus compensation, any bonus compensation must be removed from the deferral calculation for the pay period. The Greenleaf Trust retirement plan platform generates reports to the designated person(s) at the plan sponsor’s business. These reports will let the plan sponsor know when a participant is eligible, what contribution rate a participant has chosen or changed, and whether the participant’s deferral is Pre-Tax or Roth. The Greenleaf Trust team for your plan will assist you in setting up the upload files whether someone on the plan sponsor’s team does the uploads or if the uploads happen via payroll integration with the plan sponsor’s payroll vendor.
Education for participants is a significant piece for retirement plans. Most defined contribution retirement plans operate under ERISA Section 404(c) relief as a participant directed plan, which means the participants are choosing their own investments from their plan’s fund menu. The liability relief provided to plan sponsors by ERISA Section 404(c) rests with demonstrating education is offered on a regular basis. This means, primarily, scheduling education, encouraging attendance, keeping attendance records for group meetings, archiving educational materials provided and communications sent to employees. The plan’s Participant Services Team at Greenleaf Trust works with the plan sponsor to provide educational offerings in person and/or virtually each year. This is in addition to the opportunity for participants to schedule one-on-one discussions with a member of the Participant Services Team.
Education is a brick in the retirement plan house often overlooked by plan sponsors. Offering the plan is not enough if participants do not know how to use it nor how to best benefit from it for retirement. Some plan sponsors are reticent to set aside time for participants to get this valuable information for a variety of reasons such as time missed from the job/production or stating their employees will not want to participate due to lower employee compensation, etc. If plan sponsors make a concerted effort to get eligible participants in front of the Participant Services Team for the plan, participation in plans does go up. Cited in the Principal Retirement Security Survey – Nonparticipants, December 2023, there are three roadblocks to retirement plan participation: Eligibility is misunderstood, saving for retirement is confusing, and debt, salary, and expenses. By affording eligible participants the opportunity for education, participants learn how to enroll, when to enroll, how to choose investments, and how to balance debt with retirement saving.
Missing participants can be the bane of plan sponsors as the plan fiduciary must make reasonable efforts to locate missing participants to make sure they receive the required notices and can procure a distribution of their account balance. There are many methods that can be used, especially in today’s electronic world. Care must be taken, though, to ensure participant privacy and that verification methods are sound. The plan’s team at Greenleaf Trust sends the “Can Not Locate” Report out four times a year, to the designated person at the plan sponsor’s business, as it is easier to track down missing participants sooner than later. Greenleaf Trust has added the participants’ personal email address to the payroll upload template because participants may move homes more often than they change email addresses, allowing the Plan Sponsor an avenue to reach them in the event of returned mail.
The plan document is the legal cornerstone of the retirement plan. Plan set up, and any questions that arise for the plan, is driven by the plan document. The plan sponsor, as the fiduciary, must make certain the plan document is always in good order. Greenleaf Trust uses an IRS approved prototype plan document for most clients. Some plan sponsors may have attorney drafted plan documents. Any plan changes are updated in the plan document. In addition, plan document restatements, required by the IRS, are on a six-year cycle. In 2026, plan documents will be restated for the SECURE Act 2.0 update.
Certain disclosures are required, by law, to be provided to participants each year. These notices may provide investment information or specific plan disclosures. Greenleaf Trust provides the notices on behalf of the plan sponsor, in most instances. The notices include, but are not limited to, Participant Fee Disclosures, Qualified Default Investment Alternative Notices (QDIA), and, per plan specifications, may include Safe Harbor Notices or Automatic Contribution Arrangement Notices. Participants are provided with the Notice of Internet Availability (NOIA) each year, allowing them to contact our team to opt out of electronic delivery of required documents, as these notices are now available for participants on the Greenleaf Trust Web Portal for ease of access and updating.
Partnering with Greenleaf Trust for your business’ retirement plan means our Retirement Plan Division will do the heavy lifting, offer guidance, and provide the expertise to make certain your plan is a robust benefit, designed the way you desire, for your team.