The University of Iowa

Retirement Plans -- Why Executive Directors Have to Care

Thursday, January 10, 2019

Does your agency have a 401k, 403b or other plan to provide retirement funds for your staff?

If not, you should. It is incumbent upon not-for-profit programs to ensure that staff who are devoting their careers to assisting vulnerable people have the ability to retire with financial resources available to them. Not only is it the right thing to do, but it is also useful as a recruitment and retention tool.  

If you do have a retirement plan, are you meeting your fiduciary obligations as a plan sponsor?

Can you confidently answer the following questions?

  • Are there proprietary funds in the line-up you offer to participants?
  • Do you have a formal investment committee established and are regular meetings held?
  • Do you have minutes prepared for these regular (at least annual) meetings?
  • Have you completed a request for proposals for a vendor and an advisor in the past three years?
  • Do you have an investment policy statement and utilize an independent investment analysis system?
  • Do you have a target date fund analysis that has been conducted in the past three years?
  • Have you reviewed participant demographics?
  • Have you identified the percentage of employees on track for retirement?
  • Have you reviewed the fidelity bond and have a fiduciary liability policy in force?

These are just some of the issues that you need to address. This article will describe the lessons learned when Iowa Legal Aid undertook to assess the 401k plan provided to staff and suggest steps not-for-profit administrative staff should undertake.

I have so many things to do, why should this be added to my already over-extended list of tasks?

Fundamentally, one of the most important functions of executive directors, program administrators and chief financial officers is to tend to the basic infrastructure of their programs. Part of this responsibility is ensuring that high quality services are provided to clients. One of the key ingredients is to keep experienced staff. When you keep experienced staff, you want to make sure you are “doing right by them.” This includes many factors, but one of them is making sure the program is helping the employee save sufficient funds to be able to retire at the end of what will hopefully have been a productive, challenging and rewarding career working with vulnerable clients.

Beyond this agency responsibility, there is a personal reason as well. You are a fiduciary. This means you have particular responsibilities that are discussed more fully below. Individuals and entities that do not fulfill their fiduciary responsibilities can become involved in litigation. In recent years, small to medium sized retirement plans have been subject to litigation.  For example, in mid-2016, a class action lawsuit was filed against a small (114 employee) Minnesota company and the Trustees of its $10 million 401(k) Plan alleging, among other things, failure to assess the reasonableness of investment fees and selecting higher cost fund classes when lower cost options were available. These allegations fit the pattern of a number of other successful class action suits brought against fiduciaries of various plan sizes over the last few years.

So, what is this fiduciary responsibility that I have?

In the retirement plan context, a fiduciary is any individual or entity that exercises discretionary control over the management of the plan or the plan’s assets. A plan may have more than one fiduciary and an individual may serve in more than one fiduciary capacity. 

A fiduciary does not include an individual or entity that merely performs ministerial functions and does not have the authority to make decisions with respect to plan policies, procedures, etc. For example, an individual who calculates benefits or processes claims is not a fiduciary.

The fiduciary test is a functional one. You are a fiduciary even if there is no expressed appointment or delegation of fiduciary authority, but you are functionally considered in control or are in possession of authority over the plan’s management, assets or administration. As an example, members of your program’s board of directors with power to exercise discretion and control are fiduciaries. Another example would include non-board members of an Investment Committee. 

Each plan must have one “named fiduciary.” These are named in, or identified with a procedure prescribed in, the plan document. The plan document can allocate responsibilities to others. 

It is also possible to have co-fiduciaries. Co-fiduciaries are those to whom named fiduciaries allocate their responsibilities in an effort to better manage the plan. The named fiduciary has a responsibility to monitor performance of responsibilities that have been allocated to others. 

What are the potential fiduciary liabilities?

  • ERISA (the Employee Retirement Income Security Act) permits participants and beneficiaries to bring civil actions against fiduciaries who breach their duty.
  • Fiduciaries are personally liable for any losses to the plan resulting from their breach(es) and any profits that the fiduciary obtains through the use of plan assets must be restored.
  • The fiduciary is also subject to such other equitable or remedial relief as a court may deem appropriate, including removal.
  • The Department of Labor may assess a civil penalty equal to 20% of the applicable recovery amount in the event of any breach of fiduciary responsibility or violation by a fiduciary or knowing participation in such breach or violation by any other person.

How should my not-for-profit approach review of our 401k service provider?

The initial goal should be to determine whether your  agency is satisfied with the current provider’s platform, services and fees and whether consideration should be given to proposals from other vendors. The next step is to gather information about the current provider’s platform, alternative platforms, as well as a review of the fees, services and the investment line-up. Is there a heavy use of proprietary funds? This means that mutual funds are offered through the service provider’s own subsidiary investment company. If so, this raises potential conflict of interest issues. 

You also need to review fund fees and who is fulfilling fiduciary obligations.

The current state of the industry should be assessed. You need to explore the different service models that are available. One approach to use is a “bundled services” approach in which the provider manages all aspects of the plan, including record keeping, education, compliance and fund selection.

An alternative model is an “investment advisor” approach. Under this model, a professional investment advisor is selected to act as a co-fiduciary. The investment advisor works with the agency to select and periodically review fund line-up as well as the hiring and retention of a third-party record keeper.

Another service model is to proceed without a professional investment advisor and instead select only a record keeper who would then work with you to identify an appropriate fund line-up.  While this would be the lowest cost mode, it does expose the organization to inordinate fiduciary risk if you do not employ staff with sufficient investment advisory tools or expertise to protect against fiduciary liability.

Once this determination is made, what additional steps need to be taken?

If you conclude that an investment advisor model is best for your agency (the conclusion reached by Iowa Legal Aid), you may still want to solicit proposals for 401k services from both “bundled” and “investment advisor” venders. This approach allows you to assess fees and services for both models.

Before  you make a final recommendation, it may be appropriate to engage an independent third party to review your analysis and compare the investment advisor proposals to your current arrangement. The factors to consider include:

  • Fund fees and expenses.
  • Fund selection and share class (retail vs. institutional, etc.)
  • Services to sponsors
    • Annual review
    • Compliance
    • Annual filing assistance
  • Website quality and ease of use
  • Web-based retirement planning software
  • Educational materials and services
  • Fiduciary risk.

If possible, you may want to obtain the services (pro bono or paid) of a lawyer who specializes in ERISA plans. This guidance can be invaluable. The attorney can review the request for proposals, the proposals once submitted, contracts, sit in on interviews and much more.

What are the specific steps that need to be taken to implement this process?

There are multiple steps to take. They include:

  • The Board of Directors should adopt a resolution establishing an investment committee. The resolution is to provide direction about who (not by name, but by position) should serve on the committee and sets forth the parameters for the committee’s work.
  • An investment committee should then be formed. 
  • A staff advisory committee may be formed to provide input to the investment committee. It should be clear that the staff advisory committee does not function as fiduciaries and that they are only advisory.
  • Utilize a request for proposals process to determine the investment advisor you want to retain.
  • An Investment Policy statement should be adopted.
  • The investment advisor, who serves as a co-fiduciary, can assist in the development of a request for proposals for record keepers. The investment advisor helps review the responses, as can counsel.  Interviews with potential record keepers should be set for the investment committee, the staff advisory committee, the investment advisor and the lawyer assisting with the process.
  • A record keeper needs to be selected.
  • The investment advisor assists in the selection of the fund line-up which is then communicated to the new record keeper.
  • The record keeper communicates with the current provider to facilitate the transfer of funds to the new plan.

How long will the process take?

There are many variables that will impact the timeline.  For Iowa Legal Aid, the investment committee was formed shortly after the Board of Directors adopted the resolution establishing the committee in February 2017. The investment advisor was selected, the new record keeper was selected and the plan assets were transferred by December 1, 2017. The blackout period necessary for the new plan record keeper to verify the amounts transferred took most of the month of December, but by December 27, 2017, the plan had been opened up for investment choices, etc. by participants. The process of educating employees began in earnest in January 2018.

What are the recommended best practices?

The shortest and best answer is to:

  • Watch the funds
  • Watch the fees
  • Educate the employees
  • Document everything.

Best Practices - Investment Monitoring

Ideally, investments would be monitored quarterly, but at a minimum once per year. The monitoring should include quantitative and qualitative analysis. There needs to be a consistent process that is clearly outlined in an Investment Policy Statement. In some respects, the results are not as important as the process. It is important that a third party can replicate the decisions made. There needs to be independent monitoring and limited investment offerings.

Common mistakes include not having regularly scheduled meetings, not following an investment policy statement, offering too many funds with little or no guidelines and offering only investments owned by the record keeper.

Best Practices – Understanding Fees.

There needs to be a request for proposals/benchmark analysis every three to five years. There needs to be an annual review of fees for administration/record keeping/advisory services. There also needs to be an annual review of the mutual fund revenue share arrangements. Contracts with all of the providers need to be on file. Qualified vendors in this area understand the need to conduct regular RFPs and should help facilitate, not obstruct or avoid this task.

Common mistakes in this area include not understanding total cost, not conducting regular RFP/benchmarking proposals and combining investments with fee negotiations. 

Best practices – Educate employees.

Fiduciaries need to provide sufficient plan and investment information each year. It is important to identify trends that indicate poor investment choices. There need to be targeted communication campaigns either through group or individual meetings or both. KISS (Keep It Simple Stupid) investment strategies need to be employed.

Common mistakes in this area include lack of diversification, but also too much diversification.  Another common mistake is failure to identify negative trends and exposing employees to sales pitches. 

Best practices – Documentation.

It is important to have written guidelines that frame responsibilities. There needs to be a committee charter and an investment policy statement.  Decisions also need to be made regarding what educational efforts will be undertaken with staff.  Written letters of appointment of committee members and written letters of acceptance need to be utilized and kept on file. Written letters for fiduciary termination and replacement of responsibilities must also be utilized and maintained. It is essential to keep meeting minutes that document any actions taken. Documentation must be retained for at least seven years, but consider retaining it permanently, as claims can be made long after the decisions were made.

Common mistakes in this area include identifying specific investments within the investment policy statement, not taking meeting notes and not identifying committee members attending meetings.  The notes should delineate who is attending as a committee member and who is attending for input only. If there is no delineation, some might assume that everyone was voting.  Another common mistake is lack of a fiduciary file or storing too much documentation.

So, what are the bottom line recommendations?

  • Develop a well-documented fiduciary process
  • Have a committee charter
  • Define fiduciaries versus non-fiduciaries
  • Have an investment policy statement
  • Purchase fiduciary liability insurance
  • Hire professional experts including:
    • Advisor
    • Record keeper
    • Administrator
    • Attorney
    • Auditor.

It is important to keep participants (both current employees and former employees (inactive participants)) informed. Equally important is to keep your board of directors informed about the actions and the activities undertaken as a part of the program’s retirement plan. Your board of directors are fiduciaries. Keep them informed and utilize their expertise.


Ensuring that staff has a retirement plan vehicle to enable appropriate levels of retirement savings at either the conclusion of their term of service or retirement is a critical function of not-for-profit administrators. While some employers may have appropriate in-house expertise necessary to safely administer its 401(k) plan, professional assistance from outside the not-for-profit will almost always be both helpful and necessary to avoid the pitfalls and mistakes that could lead to fiduciary liability. Last, it is important to note that the expenses for investment advisors, record keeping, etc. are appropriate charges against plan assets so that no costs need be incurred by the not-for-profit agency itself. It will, however, require time commitments that are both necessary as well as beneficial to both agency and administrative staffs.



*Dennis Groenenboom was the Executive Director of Iowa Legal Aid from 1992 to 2018, and worked with Iowa Legal Aid since 1978.  He is now providing consultant services to not-for-profit organizations and can be reached at 515-537-4242 or   Dennis is a 1978 graduate of the University of Iowa College of Law.