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?

The investment policy statement should define its broad purpose and how fiduciaries should use it. 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.

One last thing—while an investment policy is a best-practice for a retirement plan and its fiduciaries, not following the investment policy is worse than not having one at all.  Review it regularly so that it remains applicable to your plan and to make sure it is being followed.

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 our LGT benefits advisor for more guidance on creating investment and educational policy statements.

Seek the services of a legal or tax adviser before implementing any ideas contained in this blog. 


Topics: Auto, Firm News, Accounting Tips, Retirement Plan Services