The 5 W’s: A New Plan Fiduciary Perspective

The Five Ws (or as they are sometimes called, Five W’s and one H) are questions whose answers are considered basic in information gathering in a variety of settings.

There are a lot of questions that plan fiduciaries should ask, but here are five W’s and an H that every new plan fiduciary — or every “old” fiduciary who is new to a plan — should ask.

Who are the (other) plan fiduciaries?

Fiduciary status is based on your responsibilities with the plan, not your title. If you have discretion in administering and managing the plan, or if you control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), then you are a fiduciary to the extent of that discretion or control. And, if you are able to hire a fiduciary, then you’re (probably) an ERISA fiduciary because the power to put others in a position of power regarding plan assets is as critical — and as responsible — as the ability to make decisions regarding those investments directly.

But assuming for a second that you are a plan fiduciary, it’s important to know who the other fiduciaries are for the simple reason that all fiduciaries have potential liability for the actions of their co-fiduciaries. If a fiduciary knowingly participates in another fiduciary’s breach of responsibility and conceals that breach or does not take steps to correct it, then both are liable.

What does the plan cost?

Ever made a hotel reservation or rented a car, only to find that the final bill reflected a price that was significantly higher than the price quoted on the firm’s website or in their promotional materials? Sometimes those extra charges are arguably beyond the control of the provider (sales taxes, special local room taxes, etc.), and sometimes — well, sometimes you just feel that the only reason they charged those the way they did was to obscure the actual cost of what you thought you were buying until they had already charged your credit card.

401(k) fees can feel a little like that, in that some fees are explicit, some are implicit, and some are transactional, meaning that they only show up when certain transactions occur (e.g., loans). Odds are that you are familiar with the explicit fees, and you may well be familiar with certain aspects of the implicit ones too. For example, you may know the basis points charged by the funds on your investment menu, on average if not specifically. But when was the last time you multiplied those basis point charges times the dollar value of assets in those funds?

Those fees might not seem like much — and may, in fact, seem “reasonable” expressed as basis points. But do the math and you might be surprised — especially if your plan assets have been growing. (As a reminder, the fiduciary admonition is that the fees and services must be reasonable, and the reasonability of fees charged should certainly be viewed in the context of the services rendered.)

That said, there’s nothing like bringing it down to an individual account level to really put fees in a “real world” perspective. So whether you actually have an “average” participant or need to create one, take the time to figure out how much they are paying for their retirement plan each year. And then ask yourself whether, if they knew that, they would they feel it was “reasonable”? If the answer is “no,” you either have some communications work, or some fee negotiations, ahead.

When was the plan document last updated?

Having a plan document is one thing, finding it (sometimes) another. But if that document isn’t updated to reflect the latest legal requirements — well, that’s a problem.

Where is the plan document (or at least a copy of it)?

On your way to figure out when your document was last updated, you’ll also have an opportunity to locate it. Like most legal documents, plan documents can be rather tedious to read, much less understand. And, like most legal documents, the longer they are in place, the more changes (particularly changes imposed by law, rather than by specific intent) tend to be appended separately, rather than incorporated, making them even more difficult to read, much less understand.

This frequently results in other documents — sometimes those as “official” as a summary plan description, sometimes as ad hoc as a plan sponsor’s “cheat sheet” — being the actual reference for plan administration. There’s nothing wrong with that, of course — unless or until those “other” documents reflect something other than what the actual plan document provides, since plan fiduciaries are accountable for ensuring that the plan is administered in accordance with the plan document. Thus, knowing what the plan document says (and where it can be found so that you can be sure you know what it says) is crucial.

How much insurance coverage do you have?

As an ERISA fiduciary, your legal liability is personal. While employers routinely carry professional liability insurance (sometimes called errors and omission insurance), in most cases that won’t cover ERISA claims. While fiduciary liability coverage is not required by ERISA, plan fiduciaries are well advised to not only see that this separate coverage is obtained, but to verify the conditions and limits of the policy.

Why do we offer this workplace retirement plan?

The kneejerk response to this question is almost always, “to attract and retain qualified workers.” While benefits matter, and can matter significantly depending on individual circumstances, most surveys suggest that benefits, and specifically retirement benefits, are a secondary consideration.

These programs do have costs, of course: the time and effort to administer the program, the costs of the plan itself, the dollars invested in an employer match, and your time (and exposure to liability) as a plan fiduciary. Those costs may pale in comparison to other programs you are expected to oversee — and the return, that ever-present obsession with ROI, may be years down the road.

Still, anything worth doing is worth doing right. And doing a workplace retirement plan “right” generally starts with having concrete goals and objectives: a specific rate of participation, a quantified level of individuals taking full advantage of the employer match, a definite number with appropriate asset allocations in place, perhaps even an established focus on individual retirement readiness.

Regardless of your goals, and how you strive to achieve them, if you don’t know why the plan is offered in the first place, you may well find yourself lacking the principles that every busy plan fiduciary needs, sooner or later, to keep conflicting priorities in balance — and yourself out of trouble.

- Nevin E. Adams, JD 

4 Reasons Why Plan Sponsors Should Care About Outcomes

It’s obvious why participants have a vested interest (literally) in the retirement income — the outcome, really — of their retirement savings plans. Here are four reasons why plan sponsors should care about outcomes.

You want your employees to appreciate your benefit plan(s).

If you’re responsible for benefit plans in your organization, you have a very real interest in how your workforce (and management team) view those benefits. Plan sponsors have long used participation rate as the plan success metric — after all, what better measure of success in plan design, education and communication than the objective data as to how many employees have chosen to participate.

But in a time when a growing number of plans have adopted automatic enrollment — well, while credit is certainly due plan sponsors who have taken that step, the resulting bump in participation rates owe more to the inertia of human behavior than innovative plan design.

There is, however, little question that the better your plan performs on an individual basis — positive growth in account balances, a resulting more robust projection of retirement income — the better workers will feel about the benefit plans that helped provide that result.

You don’t want your employees worrying about their finances at work.

Any number of workplace surveys bear out the impact that external concerns — particularly external financial concerns — have on morale and productivity at work (see “Finance Distractions Take Toll on Productivity, Benefit Satisfaction”) and “Study Finds Link Between Financial and Physical Wellness.”) Those concerns don’t even touch on the vulnerability to theft and/or misuse of organizational resources that can tempt financially vulnerable workers.

A robust retirement savings balance at work isn’t a cure for all financial ills, of course, but it can be a source of solace, as well as a resource in time of true financial need.

You want your employees to retire on time.

Workers who think they can’t afford to retire are likely to try and extend their working career — potentially complicating succession planning and your ability to attract (and/or retain) new talent. Data from benefits consultant Mercer notes that each delay in retirement can block 5+ jobs, and that if 4% of your population is retirement eligible and half of those people choose to delay retirement, 10% of your employee population would experience promotion blockage.

As an employer, those trends can also result in higher labor costs, and safety and productive concerns (see “Plan Sponsors Waking up to Costs of Older Workers who Can’t Retire.”)

You want your plan to ‘work.’

There are employers who only offer a workplace retirement plan because everybody else does, who are willing to just “set it and forget it,” who, hearing that workers aren’t taking advantage of the benefit they worked so hard to set up, shrug and say “it’s up to them.”

But that’s not you. Is it?

- Nevin E. Adams, JD

Note: You can find some interesting perspectives on various aspects of plan and participant outcomes at our Participant Outcomes resource page.

"Keep" Sakes

Ask any benefits manager why their organization offers benefits to their workers, and my experience suggests that the reliably consistent answer is “to attract and retain the best workers.”

Indeed, as the 2013 Health and Voluntary Workplace Benefits Survey (WBS)¹ bears out, the benefits package that an employer offers prospective employees is an important factor in their decision to accept or reject a job. In fact, a full third of employees say the benefits package is extremely important, and another 45 percent say it is very important. Moreover, a quarter of employees report they have accepted, quit, or changed jobs because of the benefits—other than salary or wage level—that an employer offered or failed to offer.²

However, the WBS also found that many workers are not especially satisfied with the benefits package offered by their employer: 31 percent are only somewhat satisfied, and one-quarter are not too satisfied (12 percent) or not at all satisfied (14 percent).

It is, of course, entirely possible that these workers are genuinely dissatisfied with the options provided by their employer. On the other hand, the WBS found that a substantial minority of employees may be confused about the benefits their employer offers and who pays for them—a level of ignorance that belies the time and expense often undertaken by employers in making those offerings available.

Employers increasingly look not only to attracting and retaining a qualified workforce, but (at an appropriate time and place), to helping an aging workforce migrate into retirement—a process that can be assisted by a well-crafted benefit program. And it’s not surprising that workers see value in offering additional voluntary benefits to those nearing retirement age.

In fact, the WBS finds that large majorities of workers say they think the following products and services would be extremely or very valuable to workers nearing retirement age:

• An annuity product that makes guaranteed monthly lifetime payments (83 percent).
• Life insurance that pays benefits to the surviving spouse, helping to replace income from Social Security or other sources that is discontinued when a worker dies (77 percent).
• Retirement planning that includes assistance with deciding when to retire, when to claim Social Security benefits, what Medicare option to choose, and how to set up a stream of income for retirement (76 percent).
• Long-term care insurance (71 percent).

During my working life, there have been times when I didn’t care much about certain aspects of the benefits package. As a young, single individual, I focused primarily on salary and vacation—cared less about health care insurance than I should have, while retirement benefits, even for someone who worked with them every day, were distant prospects. As my family grew, my priorities (and those that I assigned to various benefits) shifted. It was still presented as a package, of course, but the various components mattered more or less depending on my personal situation.

Ultimately, employers looking to keep the best workers committed and engaged know that benefits, like workers, have a life cycle, and that programs designed to keep the best workers are not only well-designed for those various life stages, but (as the WBS reinforces) are well-communicated and reinforced throughout a worker’s career.

Nevin E. Adams, JD

¹ The 2013 Health and Voluntary Workplace Benefits Survey (WBS) was conducted by EBRI and Greenwald & Associates. Additional information can be found online here.  If you’d like to become an underwriter of this important survey, please contact Nevin Adams at nadams@ebri.org, or Paul Fronstin at fronstin@ebri.org

² “Views on the Value of Voluntary Workplace Benefits: Findings from the 2013 Health and Voluntary Workplace Benefits Survey,”, can be found in the November 2013 EBRI Notes article online here.