Need to Make Investment Decisions for Your 401(k)? Don’t Go It Alone.
Learn how Morgan Stanley at Work can help plan sponsors meet fiduciary obligations and take a look inside our 401(k) investment decision-making process.
What is ERISA and why is it important?
The Employee Retirement Income Security Act of 1974, or ERISA, serves as the regulatory framework that the employees must comply with in order to protect the interests of their employees in creating and administering their retirement plans. Three federal agencies, including IRS, act to enforce the rules.
Which car company contributed to the passage of ERISA?
Studebaker. When the company went under in 1963, its pension plan was underfunded, depriving Studebaker employees
The Three Administrative Categories That Affect Employees
An employer offering a retirement plan is called the plan sponsor. The retirement plan fiduciary duties a plan sponsor is responsible for fall into three broad categories:
1
Investments
- Select the investment options
- Review ongoing performance of plan assets
2
Administration
- Select the plan type
- Establish plan's operating structure
- Carry out administrative functions such as enrolling participants and dispersing payments
3
Employee Engagement
- Provide employees required plan documents
- Help guide employees to make decisions best suited to maximize their outcomes
Selecting and Managing Investment Options
One of the first steps in offering a new retirement plan is determining what investment options to include. This entails selecting the investment types, assessing risk profiles, and ensuring the funds are diverse enough to meet ERISA regulations. Once the options are selected, they will need to be monitored to make sure that their performance continues to meet plan requirements.
Employers can choose to take on varying levels of responsibility for this work --handling it all themselves, making selections with advice from a financial professional, or assigning all of the selection duties to an investment manager. As in all the categories, the employer’s fiduciary duty at minimum is to stay informed of plan requirements and any regulatory requirement updates .
You don't need to do the driving, but you need to be aware of where the plan is going.
As a plan sponsor, the selection and management of plan assets can be overwhelming, especially when your day is focused on ensuring your workforce has what they need to be successful. It may be beneficial to talk to a Morgan Stanley Financial Advisor about the ways they can help with selecting and monitoring plan assets at all phases of plan growth.
Creating and Administering the Plan
Every company is different, and that includes the goals and reasons they have for offering a retirement plan. Creating a custom plan designed to move the needle on your business goals can be beneficial and cut costs in the long run.
Once created, many of the administrative tasks could be handled by someone within your organization, such as an administrative assistant. A well-drafted plan spells out what activities the individual can and should perform. These duties can include enrolling employees, integrating contributions with payroll, making distributions and the like. There are instances in which the tasks to be performed here will require more oversight, for example, when the action requires interpretation of ERISA requirements.
When administering a retirement plan, having the right guidance to lean on can help circumvent uncertainty, ease concerns, and provide a strategic advantage in business growth. Morgan Stanley at Work has a broad network of providers who can perform administrative tasks you otherwise might assume. A Morgan Stanley Financial Advisor can help assess ongoing plan needs and propose relevant solutions.
Employee Engagement and Participation
For a 401(k) plan to be successful, employees must engage and contribute. And for them to do so, they must have enough information about the plan to understand their investment options, their account holdings and their opportunities for participation.
ERISA has certain mandatory communication minimums, such as providing accurate representations of the plan holdings and issuing regular updates to participants about plan performance. As the plan sponsor, your obligation is to make sure all necessary communications are administered in a timely fashion, and that employees have access to the information and resources they need to make prudent decisions about their retirement savings.
Employee engagement can be one of the most challenging ongoing tasks for plan sponsors. Fortunately, others can be of assistance here, too. Selecting a plan provider who has accessible education and resources for employees at all stages of their retirement journeys can help drive participation throughout the life of the plan.
Retirement Plan Provider Checklist
When evaluating providers for your retirement plan, these questions may help you understand exactly how they can help with administrative requirements.
- How are plan investments selected
- Am I responsible for selecting the investments?
- How often are plan investments reviewed?
- Do you integrate with payroll?
- How often will you meet with my company to review the plan performance?
- What is the year-end reporting process?
- How do you streamline the plan set-up process?
- Can you help me find a recordkeeper to handle the plan administration?
- What do I have to do after the plan is set up?
- How do you help with employee enrollment?
- What type of education about retirement planning do you offer my employees?
The Right Provider Can Make All the Difference
401(k) plan administration can be a full-time job. From plan design to investment management and employee engagement, there’s much to consider. However, you don’t have to do it alone. Your Morgan Stanley Financial Advisor can help build a solution designed to streamline the work of creating and managing a retirement plan. As with any major decision of this type, we recommend you consult your legal and tax advisors as part of the process.
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When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.
© Morgan Stanley at Work services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and its affiliates, all wholly owned subsidiaries of Morgan Stanley.
CRC#4789023 (06/2022)
