One of the primary objectives of effective and relevant human resource management (HRM) is limiting exposure to risks. While most business owners are able to identify risk management as a primary motivation for outsourcing HRM functions, it is rare to find a “C” level executive who truly understands all of the risks involved with administering benefits, and more specifically retirement, plans in-house. While retirement plans are critical in attracting top notch employees, they pose a significant liability if administered on a stand-alone basis, and the ultimate responsibility for losses from poor investment decisions made by employees can fall onto the shoulders of the business and its owners.
In 2008, the Supreme Court (LaRue vs. Dewolff, Boberg, & Associates, Inc.) ruled that 401(k) plan participants be permitted to sue plan sponsors over the investment performance of their individual account. Whether the plan is large or small, individuals became eligible to file suit against employers independently. This opened the flood gates for ERISA based suits which neared $18 billion in 2008, up 10 fold from previous years. A perfect storm of poor economic conditions and court rulings hit the marketplace, but many CFOs and business owners remained oblivious to the changing environment.
One of the most effective vehicles to limit exposure to 401(K) related risk is to participate in a Multiple Employer Plan (MEP). Multiple employer arrangements are sometimes available through trade associations, Professional Employer Organizations (PEOs) or Payroll and Human Resource Management Firms. Through a Multiple Employer Plan plan sponsors can offload some of the responsibilities as plan fiduciary to an independent third party in accordance with ERISA section 3(21). If delivered properly, this third party will utilize professionals to ensure that there are several layers of protection for the business and the employees participating in the plan, and this can be done at lower asset charges and administration fees through economies of scale and group arrangements.
If you are not in business to administer retirement plans and choose investment options for employees, a multiple employer plan may be the best decision you will ever make, and it may save you and the plan participant’s hard dollars. Assess the savings you could make with a team member of Axiom Human Resource Solutions.