As a dedicated medical or legal professional, your focus is undoubtedly on your practice and your clients or patients. Managing the complexities of a retirement plan might seem like a secondary concern, or perhaps something that your existing providers (like your TPA or payroll company) fully handle. However, if your practice sponsors a 401(k), SIMPLE IRA, or other retirement plan, you are likely deemed a “fiduciary” under the Employee Retirement Income Security Act (ERISA).
This isn’t just a fancy title; it comes with significant personal responsibility and potential liability. Many busy practice owners are unaware of the depth of these duties, which can lead to unforeseen risks. To help you understand where you stand, here are five crucial questions every practice owner should ask about their retirement plan.
1. Do I fully understand my fiduciary duties and personal liabilities?
Many plan sponsors mistakenly believe that hiring a Third-Party Administrator (TPA) or recordkeeper completely absolves them of fiduciary responsibility. While these partners handle many administrative tasks, the ultimate oversight and decision-making power typically remain with the plan sponsor.
What to consider: You are responsible for prudent decision-making, selecting and monitoring service providers, and ensuring the plan operates in the best interest of your employees. Personal liability can arise if these duties are breached, potentially leading to significant fines or lawsuits.
2. Are my plan’s investment options diversified, prudently selected, and regularly monitored?
The investment lineup offered to your employees is a major fiduciary concern. Simply choosing popular funds or relying solely on a broker’s recommendations isn’t enough. You are responsible for ensuring the investment options are appropriate, offer proper diversification, and are objectively selected and reviewed.
What to consider: Do you have an Investment Policy Statement (IPS) in place? Is it regularly reviewed and adhered to? Are the investments performing as expected relative to their benchmarks? Who is responsible for monitoring these investments and ensuring they remain suitable?
3. Are my plan’s fees transparent, reasonable, and regularly benchmarked?
Retirement plan fees can be complex, involving multiple layers (administration, recordkeeping, investment management, advisory fees). As a fiduciary, you have a duty to ensure that all fees charged to the plan and its participants are reasonable for the services provided.
What to consider: Do you know all the fees associated with your plan? When was the last time you benchmarked your plan’s fees against similar plans in the market? Are there any hidden or indirect costs that you’re not aware of? Unreasonable fees can be a major target for regulatory scrutiny.
4. How often do we provide meaningful financial education to our employees?
While not a direct fiduciary duty in the same way as investment monitoring, providing effective financial education can significantly impact your employees’ ability to make informed decisions about their retirement savings. A well-informed workforce is more likely to utilize their benefits effectively, which can boost morale and retention.
What to consider: Is the education provided jargon-free and easy to understand? Is it tailored to your employees’ needs and different stages of their careers? Do employees feel comfortable asking questions about their plan? Remember, simply making resources available isn’t always enough; active engagement is key.
5. Do I have a documented process for managing my fiduciary responsibilities?
ERISA emphasizes process. Having a clear, repeatable, and documented process for how you manage your plan’s investments, fees, and service providers is crucial. This demonstrates that you are acting prudently, even if an investment experiences a downturn or an unforeseen issue arises.
What to consider: Are all your decisions regarding the plan documented? Do you hold regular review meetings with your providers? Is there a clear audit trail for key decisions? A well-documented process provides a strong defense in the event of an audit or challenge.
Conclusion:
Understanding and fulfilling your retirement plan fiduciary duties can feel overwhelming, especially on top of running a demanding medical or legal practice. However, being proactive and informed is the best defense against potential risks and the surest way to ensure your plan serves both your practice and your valuable employees effectively.
If any of these questions raised concerns, it might be time to take a closer look at your practice’s retirement plan oversight. Taking action now can protect your practice and secure your future.
