Employers who offer retirement plans
have a responsibility to their employees
to manage that money wisely, says Randy Carver, president of Carver Financial
Services Inc. and branch manager of
Raymond James Financial Services Inc.
And the key to managing a successful
retirement plan is reducing your liability as a
fiduciary.
“A fiduciary is anyone who has control over
assets of others,” Carver says.
Carver manages more than $680 million in
assets for clients, specializing in retirement
and wealth management.
Talking to an expert can help clear up confusion over your role as a fiduciary before
you create a plan. Ask other business owners
for referrals, and look for an expert in retirement planning and fiduciary advising.
“The key is that they’re not selling their own
investment product or representing a single
company, so there’s some objectivity,” Carver
says. “Also, find out what type of business
they do and how they are compensated.”
In your role as a fiduciary, it’s also important
that you understand your vulnerabilities.
“There’s civil litigation from unhappy
employees, and other litigation from the
Internal Revenue Service or the Department
of Labor,” Carver says. “Finally, there are just
unhappy employees.”
The most important thing you can do to
protect yourself is to create an investment
policy statement (ISP), which defines how
investment options are selected, monitored
and evaluated. Although not required, the
Employee Retirement Income Security Act
of 1974 encourages employers to have something in writing.
“The first thing the Department of Labor or
IRS will ask for if they audit you is a policy
statement,” he says. “It’s also the kind of thing
that sets the benchmark for all decisions.”
It is important to educate employees about
your retirement plan, and holding informational meetings is a good way to do this.
Carver suggests you hold the meetings on
company time and make note of attendance,
so if a problem arises, employees cannot
claim that they knew nothing about the plan.
“Meetings are a way to tell them about their
plan and benefits and to encourage them to
save,” he says. “But it also protects the fiduci-aries because they have a documented way
to say that this person was educated about
the plan.”
For example, Carver worked with one company that had about $4 million invested in its
retirement plan but no ISP. The company had
chosen the plan because the person who sold
it was a friend of the owner, and Carver says
without an ISP, the company had no way to
justify to employees that it was a good plan.
“By adding a policy statement and some
outside investment choices, they were able to
keep working with their friend but also protect themselves and offer a better plan to
employees,” he says.
Participation in the company’s plan also
increased from 70 to 90 percent once it started
conducting employee meetings and employees were more informed about the plan.
Another mistake companies make is not
offering enough choices in their plans. Plans
should have multiple investment managers
and companies available, Carver says, and
companies should offer managed or lifestyle
accounts instead of just individual investment
choices, allowing employees to either choose
a set mixed portfolio or build their own.
Carver says leaders should determine what
they are trying to accomplish before setting
out to create a retirement plan.
“Once you have an idea, talk to a number of
providers,” he says. “Working with a professional can make it a lot easier. Once you pick
a plan, it’s a team effort between your
accountant, possibly your attorney and then
your HR people.”
HOW TO REACH: Carver Financial Services Inc. and Raymond
James Financial Services Inc., (440) 974-0808 or www.bullmkt.com
What is ERISA?
For decades, many employees thought
they were financially set for retirement,
only to find that their employers had
mismanaged the funds in their private
pension plans, leaving them with little to
no money.
As a result, Congress passed the
Employee Retirement Income Security
Act of 1974 (ERISA), which sets minimum standards for retirement and
health benefit plans in private industry.
ERISA sets minimum standards for
employers to provide plan participants
with information and provides fiduciary
responsibilities for those who manage
plan assets. Those guidelines apply even
if someone doesn’t realize they are a
plan fiduciary, says Randy Carver, president of Carver Financial Services Inc.
and branch manager of Raymond James
Financial Services Inc.
“The scary thing is that ERISA says
that any fiduciary in a company is personally liable,” Carver says. “So you can
have people who sit on a board or a
finance committee, it could be an officer,
an employee or the business owner, and
they can be fiduciaries and not even
know it.”
Fiduciary responsibilities include having an investment policy statement in
writing, making investment decisions
against a “prudent expert” standard,
diversifying assets, monitoring plan performance, avoiding prohibited investment transactions, and conducting business solely for the purpose of providing
benefits to participants and to defray
reasonable administrative expenses.