If your organization sponsors a retirement plan, you don’t want to underestimate your potential liability. Why? Because along with your organization being liable, you might be personally liable, too.
Several years ago, litigation against 401(k) and other retirement plans was focused on the really large plans, but more recent actions have been filed against all sizes of plans. Worse yet, attorneys are starting to target disgruntled employees to seek out potential actions.
As long as this trend continues, it’s vital to realize that no organization is immune to potential legal troubles.
Fortunately, there are some steps you can take to minimize your potential liability. One important one is keeping good records.
Put it in Writing
If you’ve ever had the unfortunate experience of being involved in any type of lawsuit or legal claim, you probably quickly realized the importance of getting things in writing.
As a retirement plan sponsor, you’ve got significant fiduciary responsibilities. That means you are responsible, both personally and through your organization, to always put the participant’s interests first; you need to make sure the participants’ money is always handled correctly. And you need to administer the plan to the letter of regulations and always use best practices. That makes sense, since your valued team entrusts the plan with the money they will rely on after they retire. The plan needs to be managed cost-effectively and transparently.
So there’s no room for error. You’ve got to do everything required of you as a plan sponsor. Then, once you do it, you want to properly document it all.
Keep it Thorough and Formal
Furthermore, you must be very careful to document things in a way that is thorough and formal. In a legal proceeding, everything in writing might be put under a microscope. Worse, if you didn’t document certain things (like meeting minutes, or how you handled participant concerns), that could create risk for you and your organization.
With retirement plans, literally everything you do should be documented. Since we’re dealing with your employees’ money, again, documentation should never be informal. Everything should include sufficient detail about what is being done for the plan, and provide reasoning behind why certain decisions were made. While it might seem laborious, this process is your potential protection if you end up involved in any type of legal claim.
One caveat, though: the documentation needs to remain consistent. If you detail actions that need to be followed up on, then those follow-up actions must also be documented in a similar fashion. If not, your detailed records can potentially backfire on you.
If you’ve got a retirement plan advisor who’s knowledgeable about litigation trigger points, they can help you with this process. Also, your consultants should be providing you with regular reports, which should be added to your documentation.
With the responsibilities placed on you as plan sponsor, this message is vitally important: You must document everything you do for the plan.
Don’t forget to take detailed minutes in your retirement plan meetings. Your retirement plan advisor may provide that service for you, but you should always review those and retain copies in the plan records.
Other areas that should be thoroughly documented:
- Lists of attendees and facilitators at participant education and enrollment meetings
- Copies of all communications sent and received
- Copies of all investment education materials
When handling your participants’ investments, it’s not enough to make sure you’re doing it right; you must also keep detailed records of how you’re doing it. The former protects their money; the latter protects you.
(This was an excerpt from our free eBook, How to Reduce Your Potential Liability as a Plan Sponsor.)
Download our Free EBook for More Tips
For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:
- Learn about your role as a retirement plan fiduciary
- Action steps you can take to identify any areas where you need to do more
- How to identify and implement best practices
As potential risks rise, make sure your organization is prepared. Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.
