Retirement Plan Administration: What's Required to Set Up and Manage a Retirement Plan

 

There are many reasons to offer your employees a retirement plan – advancing your company’s business interests, using tax credits to contain costs, and creating an attractive work culture among them. But you may be wondering if you have the time and knowledge to effectively manage a retirement plan. Let’s take a look at what’s required and what to consider when selecting a retirement plan provider.

Fiduciary Duty: The Key to Understanding Your Retirement Plan Responsibilities

Fiduciary duty is a legal way of saying that an individual, group or entity must act in the best interests of a separate individual, group or entity. For example, a publicly traded corporation has a fiduciary duty to act on behalf of shareholders. In a retirement plan, the employer has a fiduciary duty to act on behalf of the employees.

Rules imposed by the federal government are designed to ensure that employers or those helping administer a retirement plan adhere to that fiduciary duty. For example, participants must receive a summary plan description that explains how a plan works, as well as quarterly statements about their investments’ performance, balance and vesting information. Now let’s get an overview of the three categories in which these rules are applied.

What is ERISA and why is it important?

The Employee Retirement Income Security Act of 1974, or ERISA, serves as the regulatory framework that employers must comply with in order to protect the interests of their employees in creating and administering their retirement plans. Three federal agencies, including the IRS, act to enforce the rules.

Trivia question: Which car company contributed to the passage of ERISA?

Answer: Studebaker. When the company went under in 1963, its pension plan was underfunded, depriving Studebaker employees of their promised retirement funding. ERISA was passed to protect other workers from the same fate.

The Three Administrative Categories That Affect Employers

An employer offering a retirement plan is called the plan sponsor. The fiduciary duties a plan sponsor is responsible for fall into three broad categories: 

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 do 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

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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Disclosures:

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/ or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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