We have witnessed how the COVID-19 crisis has affected the global economy and has drastically decreased revenues of many businesses worldwide. However, this pandemic has not significantly decreased employer expenses. This global tragedy also has not excused employers of their retirement plan fiduciary responsibilities and employers will need to work differently to fulfill their fiduciary obligations. In light of the current situation, some employers may need to consider shifting a portion or all of the retirement plan (“Plan”) costs they pay to Plan participants in order to maintain and not terminate their Plans.
Plan Sponsors (“Employers”) Fiduciary Responsibilities
Employers may be tempted to place their plan fiduciary duties on hold or even decide to discontinue their plan oversight responsibilities due to COVID-19. However, with the investment volatility and stock market uncertainty that continue to affect Plans, this is when fiduciary oversight is required more than ever. Many Employers understand the importance of their Plan fiduciary responsibilities. As a result, they have coordinated with their Plan vendors to perform their fiduciary duties by conducting Plan administration and investment review meetings via conference calls and/or video WebEx telecasts.
COVID-19 Business Assessment and Possible Reallocation of Retirement Plan Costs
The COVID-19 crisis has forced many businesses and not-for-profit organizations to take cost-cutting measures in order to continue operations. One cost-cutting measure that Employers may need to consider is how Plan costs are shared between the organization and Plan participants. The most common costs that Employers either pay or share with Plan participants are Plan administration expenses (recordkeeping, third party administration, investment advisory, trustee, and audit expenses). The Department of Labor considers these Plan administration expenses to be fiduciary expenses that Employers can charge the Plan. The 2019 Deloitte Defined Contribution Benchmarking Survey Report indicates that 25% of Employers pay all of these fees, 57% of Plan participants pay these fees, 12% of Employers share these fees with the Plan participants and 3% of Employers pay these fees from Plan forfeitures. Additionally, 25% of Employers changed vendors due to Plan costs, up 7% from 2017.*
If you, as Plan Sponsor, pay some or all of these Plan administration expenses, it may be possible to shift these expenses to your Plan and/or Plan participants.
Whether Employer Reallocation of Retirement Plan Costs Is Appropriate
Under the Employee Retirement Income Security Act (ERISA), fiduciaries are required to act in the best interest of Plan participants and their beneficiaries. Therefore, before Employers take action to shift some, additional or all Plan administration expenses to Plan participants, Employers need to establish a Plan review process to monitor and assess Plan costs paid by the Plan and/or participants, and should include benchmark data.
If your organization is struggling with cost-cutting measures as part of the COVID-19 crisis, you may want to consider shifting Plan administration expenses paid by your entity to your retirement plan. Please contact Midland Retirement Plan Services or reach out to me, David Allen, at 815-231-2823 or dallen@midlandsb.com for assistance today.
*2019 Deloitte Defined Contribution Benchmarking Survey Report, pages 5 and 20.