The Importance of Retirement Plan Governance

The Importance of Retirement Plan Governance

April 05, 2018

Usually, when your clients decide to sponsor a retirement plan, it’s not because they actually want to run a retirement plan. It’s because they care about their employees and want to be competitive when trying to attract new talent.

Sometimes, managing the retirement plan itself can fall by the wayside as your business owner clients handle more urgent and more appealing tasks. But that can be very dangerous. They need solid plan governance in order to maintain compliance and meet their employees’ needs.

What Is Plan Governance?

Plan governance refers to the holistic system of decision-making, oversight, and other elements that go into maintaining a successful retirement plan. It provides the structure, processes, and authority for operating the plan. Proper plan governance is needed to be effective in designing and amending plans, selecting and monitoring investments and service providers, and determining benefit claims.

Risk Management

One of the main functions of plan governance is risk management. There is a lot of risk involved in sponsoring, administering, and participating in a retirement plan. Sponsors put a lot of employee time and money on the line, and they want to make sure they get the best possible return on their investment. Plan administrators take on fiduciary responsibilities that make them legally liable. Participants invest their retirement savings, often their entire life savings, into the plan, risking their future.

Plan Sponsors

Proper plan governance can protect an employer’s investment in a plan by making sure it is run effectively and efficiently. Plan governance guards against excessive and unnecessary expenses. It also provides opportunities to assess whether or not the plan is achieving the goals set for it by the plan sponsor.

Plan Fiduciaries

Plan fiduciaries are anyone with a responsibility for managing a retirement plan or it’s assets. This could include the business owner, retirement plan committee members, human resource department employees, plan trustees, third-party administrators, and investment advisors. As fiduciaries, they are legally required to act prudently, in accordance with plan documents, in the best interest of plan participants and beneficiaries, diversify investments, and only use plan assets for paying benefits and reasonable administrative costs.

Proper plan governance should be established in accordance with plan documents, keeping fiduciaries in line with them. The plan governance should provide a process for decision-making that shows proof of prudent actions should they ever be questioned. It should also include a system for periodically reviewing investment options and costs, which would protect fiduciaries from ERISA lawsuits similar to many of the ones being fought out in courts today.

Plan Participants

A worker’s retirement savings are not solely dependent upon their ability to put aside money. There are two other major factors- the performance of the investments available to them and the fees they pay for those investments. A good system of plan governance will ensure that both investment performance and fees are monitored on a regular basis so that participants can maximize what they are able to save.

How I Can Help

As you can see, proper retirement plan governance is vital. It is not only necessary for the day-to-day running of the plan but to minimize risk for everyone involved. If you have clients that don’t have well-established governance processes for their employee benefit plans, they are putting themselves and their businesses at great risk.

If your clients need help establishing or refining their plan governance process, I can provide governance consulting. I can help them more effectively manage their plan by clearly defining roles, responsibilities, and decision-making guidelines. Poor plan governance is an unnecessary risk for both your clients and their employees. Email me today at if you have a client that could benefit from professional retirement plan guidance.

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.