Can I outsource my retirement plan participant noticing responsibility?
You sure can!
Plan sponsors have the right to outsource their responsibilities. Many companies implementing retirement plans don’t have the internal expertise to ensure the plan functions compliantly. Therefore, in many cases, the plan sponsor hires experts to perform some or all of its duties. Hiring a record keeper to manage web accessibility and participants’ daily account valuations is common practice. Plan sponsors also frequently hire a third-party administrator to manage the plan documentation and regulatory responsibilities. Finally, many plans hire a financial advisor to manage the investment selection and provide fund oversite. All of these options are a form of outsourcing responsibility.
In early 2021, the Department of Labor (DOL) issued best practices regarding the distribution of notices and participant communication. These best practices added additional administrative responsibilities to the plan to ensure all participants receive proper communication and that no plan participants go “missing” due to inaccurate census data. The DOL outlined recommended steps that each plan sponsor should take regarding information distribution, receipt verification, and locating any “missing” participants (those the plan could not verify had received the required information). These steps added significant work to the plan and plan sponsor. If the plan sponsor doesn’t feel their company has the internal expertise and resources to manage this process, they have the right (and one might argue the responsibility) to engage in outsourced support.
As with hiring any outsourced expert, the plan sponsor should practice due diligence and verify that services are offered at an appropriate price and add value to the plan. When vetting a service provider, here are some items you will want to review:
- The service provider’s contractual scope of work (responsibilities and fees)
- The service provider’s guarantees
- The service provider’s acceptance of fiduciary responsibility
- The service provider’s ability to financially support the liabilities it accepts for the plan
- The service provider’s overall expertise in the industry
If you don’t perform proper due diligence as a plan sponsor, you can be challenged by the DOL, the IRS, or a participant-hired attorney, creating additional costs or risks to you. Therefore, you should document all work performed prior to making a decision for the plan.
In a nutshell, outsourcing responsibilities, including the process of noticing and communicating with participants, is an acceptable practice. The plan sponsor, however, should continually review their service providers to ensure they are fulfilling their obligations to the plan and its participants.
If you’re interested in outsourcing your noticing responsibilities, contact us. Plan Notice manages the participant communication and distribution of required notices for the plan sponsor. We follow the DOL 2021 best practice guidelines to ensure compliance. Additionally, we keep an audit log documenting all communication and create a receipt for each notice we send. If you engage our services, Plan Notice indemnifies the plan and the plan sponsor and accepts responsibility for any costs or fines that may arise due to improper noticing.
