Why you need to formalize your retirement plan policy

If your dealership offers a retirement plan to employees, you have certain fiduciary responsibilities as the plan’s sponsor. Failure to meet these responsibilities can be costly, because corporate officers (as fiduciaries) may be held personally liable to restore losses suffered by plan participants.

The Employee Retirement Income Security Act (ERISA) sets the standards for the fiduciary conduct of plan sponsors. One of ERISA’s main fiduciary standards is that plan sponsors have a specific policy in mind when they choose the plan’s investments. And one of the best ways for a dealership to demonstrate this is by creating a formal investment policy statement for its retirement plan.

What’s included?

The Department of Labor defines an investment policy statement as “a written statement that provides the fiduciaries that are responsible for plan investments with guidelines or general instructions concerning various types or categories of investment management decisions.” The language usually addresses topics such as:

  • The plan’s investment structure,


  • The criteria and procedures for selecting, monitoring and replacing plan investments,


  • Core and noncore funds offered by the plan (including lifestyle or asset allocation funds),


  • Whether employer stock will be offered via the plan, and


  • Ancillary services offered to participants, such as investment education and advice.

Although ERISA doesn’t require you to draft a formal investment policy statement, doing so can help you meet the law’s expectation of “procedural prudence” regarding plan management. This means that fiduciaries will set and follow procedures designed to make sure the plan is being operated prudently, and that the participants’ interests are given top priority.

Anything else?

You might consider creating a retirement plan educational policy statement, too. This document — separate from the investment policy statement — can help demonstrate procedural prudence and improve your employees’ retirement outcomes. It should describe how employee retirement education programs will be implemented and run.

Both the investment and educational policy statements should define their broad purposes and how fiduciaries should use them. The investment policy statement also should detail the plan’s objectives, the duties and responsibilities of plan fiduciaries, and the sponsor’s philosophy about different asset categories. In addition, it should describe how investment performance will be reviewed against goals and benchmarks, and how the statement will be reviewed and changed in the future.

Who can help?

Retirement plans now “come standard” with most jobs these days — including positions at dealerships — and, as an employer, you may face challenges covering all of the necessary details. Consult your investment advisor for more guidance on creating investment and educational policy statements.

© 2015