COVID-19 has presented a unique set of challenges for employers, and has changed the way we think about everyday issues. You may have questions about your retirement plan as it relates to fiduciary liability during these difficult times.
Does our fiduciary liability increase during periods of significant market volatility?
Ensuring prudent process and documentation during good times and bad is a crucial component of fulfilling your fiduciary responsibility. A well-defined and consistent process ensures plan fiduciaries are making sound decisions, grounded in the best interest of plan participants and their beneficiaries. This process should not change as a result of increased market volatility – rather, the process in place should focus on successful participant outcomes over the long term and be consistent in the face of various market environments. A well-diversified, retirement-appropriate investment line-up should offer participants the necessary diversification they require through all market cycles.
Ensuring plan participants have access to investment information and general plan education affords them the opportunity to make informed decisions – this is of critical importance. Retirement plans that adhere to Section 404(c) under ERISA allow participants to direct the investments of their individual retirement accounts. As such, participants are responsible for their investment choices, providing a safe harbor for plan fiduciaries – in short, plan fiduciaries of 404(c) compliant plans are not responsible for the individual investment decisions made by plan participants, regardless of the market environment.
Should our Retirement Plan Committee meet more frequently during times of severe market volatility?
Increased market volatility does not require an increase in retirement plan committee meetings. Adhering to the prudent process previously established by your committee and/or investment advisor during these periods of significant market volatility ensures prudent decision making during these challenging times. Adding market volatility to the agenda for any regularly-scheduled meetings is appropriate, to ensure committee members understand the impact the volatility has had on plan health, the investments in the plan, and participant behavior. Capturing this discussion in the minutes of the meeting is important from a documentation perspective.
How can Plan Sponsors protect themselves during this challenging time?
During period of extreme market volatility, plan sponsors must consistently perform their fiduciaries duties, including:
- Administer the plan according to the plan document
- Deposit all participant deferrals and loan repayments timely
- Continue to monitor all plan related expenses to ensure reasonability
Given the financial impact of COVID-19, it is important to remember to amend the plan before changing required employer contributions, if necessary.
Understanding that plan fiduciaries are dealing with many unknowns and may have increased workloads during these times of uncertainty, it is critically important to continue to monitor the plan and follow prudent process. As such, committee meetings should not be cancelled if alternate methods of getting together can be adopted (i.e. virtual meetings, conference calls).
What are the participant communication requirements during this time of increased volatility?
There are no rules or regulations that require increased communication to participants during periods of increased volatility. However, it is prudent to review the education and information offered to plan participants by various parties, and advocate for additional resources to help plan participants navigate these difficult times. Recordkeepers and investment advisors are a valuable source for additional resources and support during periods of increased volatility and uncertainty. Plan sponsors should be careful not to provide investment advice.