Five Things Every Plan Sponsor Should Document and Review Regularly

Nathan Bender CRPS™ |

If you’re a plan sponsor, (responsible for making decisions for your company’s 401(k) plan), there are several things that you should document and review regularly. 

The reason documentation is so important is because in the regulation that governs corporate defined benefit plans (ERISA), there is language outlined that directs plan fiduciaries to implement a prudent process when making plan decisions.

Prudence can be demonstrated through detailed documentation which can help you limit liability in the event of an audit or participant lawsuit.


So Here are Five Things Every Plan Sponsor Should Document (and Review Regularly)

1. Investment Policy Statement
In your compliance file, be sure to have a copy of your plan’s Investment Policy Statement (or IPS).  This is the document that provides guidance on the investment strategy for the plan assets.  If you don’t have one, contact us and we’d be happy to provide you with a sample or work with you to create a custom policy for your plan.  It’s important to have a documented process for how the plan’s investments are selected and monitored and an IPS is a document that does that.

You should review your Investment Policy Statement annually to ensure the strategy is still applicable to your plan, to confirm it’s being followed, and update the policy if needed.

2. Plan Investment Reviews
You should conduct a regular (quarterly is a best practice) reviews of plan assets against the criteria outlined in your IPS. Whenever any investment performance criteria fails to meet the strategy outlined in the policy, you need to document:

  • what research you reviewed 
  • what decisions have you made in regard to those assets
  • reasons for the decisions made

3. Service Provider Selection and Monitoring
Whenever you hire a plan service provider, it’s important to follow a prudent process which includes having documentation that shows:

  • Reports reviewed, background information reviewed, referrals checked, licenses checked, etc.
  • The provider’s 408(b)2 disclosures – review their fees, if they’re a fiduciary, etc.
  • How the provider’s fees compared to other providers and industry averages

Also included in your compliance file should be an ongoing monitoring process of each provider that demonstrates you annually review:

  • Provider’s Service Contract – is it still in force? Does it need updated? etc.
  • Any complaints received (if applicable, what follow-up or resolution was provided)
  • Provider’s Services – are they all still needed (being utilized)? - new ones needed?
  • Fees – are they still reasonable and are you being charged what the contract states? 

4. Participant Communications
Any communication that gets sent to plan participants should be documented (including copies of each document/disclosure and proof/method of delivery).  

This includes any educational material provided as well as the required documentation such as:

  • The Annual Summary Plan Description
  • The Annual Fee Disclosure 
  • 404(c) Notices
  • Tax Forms
  • Any other required participant communications

5. Plan Management Activity
If you’re the only person responsible for plan decisions, you should keep a detailed log of any decisions you make regarding the plan, copies of correspondence sent to service providers with instructions on the plan, etc.
If your company and plan is big enough to have an investment committee, you should formalize the committee with a “committee charter” (or bylaws) Contact us for a sample if needed.
When the committee meets (in person, virtually, or via teleconference) you should keep detailed minutes of all material reviewed, decisions made, and the reasons behind each decision.
Having a paper trail that indicates you undertake a prudent process in how you manage your plan, monitor your service providers and fees, etc. can be the difference between meeting and failing to meet your fiduciary responsibilities.

If you need assistance…

If you need assistance, samples, or help in meeting the documentation and recommendations outlined above, please contact us and we’d be happy to help.