Business Owners: How does COVID-19 impact your retirement plan?

Over recent weeks, we’ve all been dealing with the fallout from COVID-19. If you’re a
business owner, you’ve probably got your hands full making adjustments so your
business can continue to operate as normally as possible.
But don’t forget about your retirement plan. Even in unpredictable times, one fact
remains: if you are a retirement plan sponsor, you are a fiduciary of that plan. That
means if you sponsor a 401(k) or another plan for your company, you are legally
responsible to put your plan participants’ best interests in front of your own at all times.

This responsibility is not just a potential business liability; if you breach your
responsibility as a plan fiduciary, you may be held personally liable as well.
Which makes sense, if you think about it. Your retirement plan includes money
invested by your company, but also by your participants. That’s money they earned
that they need for their future. This responsibility can’t be taken lightly. You are
responsible to do everything needed to help keep that money as safe as possible.
Of course, you’re likely already doing everything you can think of. The problem lies
in following the complex regulations that govern these types of defined
contribution pension plans.

High Stakes
And now, the stakes are even higher. The past decade has seen an increasing trend
of litigation against plan sponsors, large and small. But that all occurred during a
long bull market, with participant balances likely rising. Imagine how much more
litigation might occur in a bear market, when investment values fall and people are
more inclined to find someone to blame.

It’s not just a few lawsuits, either. Plansponsor.com noted that more than 83,000
ERISA lawsuits have been filed against retirement plans since 2009.

These thousands of lawsuits have served to clarify what’s required of plan
sponsors. As a result of this case law, your responsibility as plan sponsor goes far
beyond setting up the plan correctly and picking funds that your participants can
choose from.

Instead, your role continues and requires ongoing actions. For example, upfront
research before picking mutual funds for the plan is not enough. The plan sponsor
needs to actively monitor mutual funds in the plan. If funds start underperforming
similar funds, for example, the sponsor is responsible for quickly replacing the
fund. Additionally, you need to conduct audits frequently to make sure plan
expenses are in line with what other plans your size are paying. As you might guess,
this requires an ongoing effort to manage the fund according to these best
practices and document everything in detail.

Somebody’s Watching
Worse, a few specialized law firms have been advertising online for employees who
are unhappy with their retirement plans. As we all know, litigation, even if it is
without merit, can be extremely expensive and disruptive.
That’s why it is critical that you stay compliant.

Sharing the Responsibility
Fortunately, there is a way to lessen your responsibility. That’s by hiring an advisor
qualified to share that fiduciary responsibility with you and make sure everything is
handled according to best practices.There are actually two types of fiduciary retirement
plan advisors. One is a 3(21) advisor. (That number simply refers to the section of the
Employee Retirement Income Security Act of 1974 (ERISA) that authorizes it.)
The second is a 3(38) advisor. While the 3(21) advisor simply shares the fiduciary
role, the 3(38) retirement plan advisor role goes much farther. These advisors can
make and implement investment decisions for the plan. In this case, that 3(38)
advisor takes on more liability….lessening yours. It’s important to note that you’re
still responsible to take care when hiring that advisor, then monitor their work
on behalf of the plan. However, when working with a 3(38) advisor, you have much   
less liability.

One More Challenge: CARES Act Changes
There’s one more challenge for today’s retirement plan sponsor, and that’s
updating your plan as appropriate based on the CARES Act. The CARES Act
(Coronavirus Aid, Relief, and Economic Security Act) was put in place to help individuals and
businesses hit hard by the pandemic.
First, if your business has been impacted, you may have the ability to reduce or
temporarily suspend your employer contributions.
Then, several relief options are available for participants, including increased ability
to take money out of their accounts to help them mitigate a loss of income. But for
them to access these benefits, you’ll need to make changes to your plan. You’ll want
to carefully weigh the implications to make sure you handle that in the best interest
of your participants. Additionally, there will be more clarifications provided by the
IRS and other agencies as the industry tries to interpret the CARES Act.

Take-Home Message
There’s nothing easy about being an employer in today’s uncertain environment.
But when it comes to protecting your team’s money, you can’t afford mistakes.
Always keep in mind what’s at stake, and make sure you have the knowledge or
professional advice to help you do things right the first time. When it comes to
avoiding liability, an ounce of protection is truly worth a pound of cure.

John Odell is Principal of Capital Research + Consulting, a Retirement Plan Advisor to
governmental, non-profit and corporate retirement plans.   With over $4 billion in plan
assets, we have over 27 years of experience keeping plan sponsors compliant and helping
participants prepare for the future.  Visit us at https://capitalresearchandconsulting.com/.