May 6, 2020
Brian services institutional clients by providing advice and guidance on the manager search process, fund selection for portfolios and overall investment management. Brian is a member of the firm’s Defined …
The COVID-19 crisis is changing everything, from how we interact with people, to carrying out simple everyday tasks, to running our organizations. In times like these, businesses and nonprofits are adapting on the fly to accommodate client needs while keeping their doors open and people safe. Some entities are harshly impacted requiring management and leaders to rethink business models and make difficult decisions to survive… cutting costs may be crucial to survival.
Plan Oversight Carries On
Plan Sponsors now have much more on their plate. It’s tempting to place fiduciary oversight of the Plan on the backburner or, in more drastic cases, to think it is no longer needed. This is the exact wrong time to allow fiduciary oversight to lapse. At the time this article was written, the S&P 500 has experienced sixteen days, since the market peak on February 19, with moves greater than four percent (+/-) and WTI oil futures traded negative for the first time in history.
Oversight of Your Retirement Plan is Not Optional
For organizations implementing furloughs or lay-offs, it may be difficult to gather a quorum. For other organizations working at full capacity or beyond, committees may feel they don’t have time to meet.
You May Be Able to Reallocate Costs
Organizations running lean and seeking to cut costs should assess how qualified plan fees (audit, investment consulting, legal, etc.) are assessed. If you have historically paid for these services at the organization level, it may be possible to shift these expenses to the Plan and/or Plan participants. The Plan Sponsor Council of America’s 62nd Annual Survey shows 60 percent of companies pay audit fees, 42 percent pay investment consultant fees and 68 percent pay legal fees incurred by the Plan1. And the percentages are likely to rise.
Sponsors should first evaluate each cost on a case-by-case basis to determine if the expense is fiduciary function in nature or a settlor function. Fiduciary expenses can be paid by Plan assets, settlor functions cannot. This is an important distinction and one that has multiple consequences. Groom Law Group produced a chart to help Plan Sponsors determine whether certain expenses qualify as fiduciary or settlor. Once an expense is identified as fiduciary there are several considerations for passing the expense on to the Plan. A few are listed below.
• Does the Plan document allow for the Plan/participants to pay these costs?
• What Plan assets are available to pay qualified Plan expenses? (forfeitures, ERISA Budget Accounts or revenue share, charging participants directly)
• How will you assess the costs to participants, pro-rata or per-capita?
• How does this impact my fiduciary obligations?
Shifting some (or all) of the above mentioned expenses to the Plan can save money for your organization. That savings, however, may come at an additional layer of fiduciary oversight. ERISA requires fiduciaries to act in the best interest of Plan participants and their beneficiaries. This includes establishing a process to monitor and assess the reasonableness of Plan costs that are charged to the Plan and/or participants.
If your organization, like many navigating the COVID-19 crisis, is forced to cut costs, shifting expenses from your entity to your retirement plan could make sense. Please visit the Retirement Plan section on our site and feel free to contact any of the professionals at DiMeo Schneider for assistance.
The information contained herein is confidential and may not be disseminated or distributed to any other person without the prior approval of DiMeo Schneider. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecasts represent future expectations and actual returns, volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is a possibility of a loss.
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