Many plan sponsors believe that once they hire a recordkeeper, TPA, or investment advisor, their fiduciary responsibilities are largely taken care of. While service providers certainly help manage the plan, there is one fiduciary duty that plan sponsors can never fully delegate: the responsibility to monitor those providers.
Under ERISA, the plan sponsor is ultimately responsible for ensuring that the retirement plan is operated prudently and in the best interests of participants. Hiring competent service providers is part of that obligation, but it does not end the sponsor’s responsibility.
Monitoring service providers means more than simply signing a contract and assuming everything will work smoothly. Plan sponsors should periodically evaluate the performance of their recordkeeper, TPA, advisor, and other vendors. This includes reviewing service levels, responsiveness, accuracy of administration, and reasonableness of fees.
For example, if a recordkeeper consistently makes operational errors or fails to respond promptly to participant requests, the sponsor has a duty to address those issues. Similarly, if fees become excessive compared to industry standards, sponsors should evaluate whether a change is necessary.
Monitoring does not mean micromanaging providers or questioning every operational decision. Instead, it involves maintaining reasonable oversight and ensuring the providers hired to assist with the plan are performing their roles effectively.
This responsibility sometimes surprises plan sponsors because they assume the experts they hire assume all of the legal risk. In reality, ERISA places the ultimate responsibility on the plan sponsor to ensure the plan is administered properly.
The good news is that monitoring providers does not need to be overly burdensome. Periodic reviews, regular communication with advisors, and documentation of decisions can go a long way toward fulfilling fiduciary obligations.
At the end of the day, hiring good providers is important. But overseeing them is just as critical.
