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Fiduciary benchmarking expectations

The Department of Labor (DOL) provides guidelines and regulations for employers regarding the management and administration of 401(k) plans. They emphasize the importance of fiduciary responsibility and prudent management, which includes benchmarking as a part of ongoing plan review and evaluation. They recommend benchmarking every 3 years for plan maintenance. At VWA, we benchmark our client’s program once a year to make sure their plan is receiving the best price and performance possible year over year. Our dedication is to the plan sponsor, not the TPA or recordkeeper.

Here are some key aspects related to benchmarking and DOL guidelines:

Fiduciary Responsibility:

  • Prudent Monitoring: Fiduciaries are required to regularly monitor and review the plan’s performance, fees, and services to ensure they are in the best interest of plan participants.
  • Documentation: It’s essential to document the process of benchmarking and the rationale behind any decisions made based on benchmarking results. This documentation serves as evidence of prudent management.

Comparative Analysis:

  • Benchmarking Against Industry Standards: While not explicitly mandated, comparing the plan’s features, fees, and performance against industry benchmarks is considered good practice to ensure the plan remains competitive and beneficial for participants.
  • Evaluating Fees: The DOL emphasizes the importance of understanding and evaluating plan fees to ensure they are reasonable for the services provided. Benchmarking helps in assessing whether fees are in line with industry standards.

Regulatory Compliance:

  • Adherence to ERISA Requirements: The Employee Retirement Income Security Act (ERISA) sets standards for retirement plans, emphasizing the need for plan fiduciaries to act prudently and in the best interest of participants. Regular benchmarking can assist in ensuring compliance with ERISA requirements.

Reporting and Disclosure:

  • Participant Disclosure: Fiduciaries have an obligation to provide participants with clear and accurate information about the plan’s features, fees, and investment options. Benchmarking results may inform these disclosures.

The principles of prudent fiduciary responsibility strongly encourage the regular evaluation and comparison of a 401(k) plan’s performance and features against industry standards. This practice helps ensure that the plan is well-managed, competitive, and aligned with the best interests of plan participants. Consulting with legal or financial professionals familiar with ERISA guidelines can provide specific guidance tailored to your plan’s needs and compliance requirements.