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  • Nicholas Zaiko, CIMA

Best Practices: Annual Plan Reviews

As a plan sponsor, a key component of your fiduciary best practices should include an annual overall plan review. The review should include metrics used to measure the plan's success. It is critical to have an accurate understanding how well your plan is meeting the retirement needs of your participants.


There are general functions within your plan that your annual plan review should include:


  • Plan Design

  • Recordkeeping and Plan Administration

  • Investments

  • Updated plan documents

  • Plan compliance with IRS, DOL, ERISA

  • Participant Communication and Education

  • Service Provider Fees

Purpose of Annual Plan Review

The annual plan review should occur at the end of your plan year or early into the new plan year. The role of an annual plan review is to enable you as a fiduciary to effectively oversee each aspect of the plan's operations. This includes the plan's design, the participant statistics, quality of investments and their performance, regulatory and legislative changes, compliance and participant communications. It is also important to conduct an annual review for financial stability of your plan's critical service providers that track safeguard your participants assets such as the trustee/custodian and administrator / recordkeeper.


The results of the plan review provides documentation of the plan, an opportunity to correct plan errors, and improve participant services. The review can include establishing enhancements and goals for the plan in the upcoming plan year. The review can identify operational improvements and participant education/communications programs. The review should include Section 404(c) compliance or areas for improvement.


Nondiscrimination test results, participations rates are best documented in the annual review. A review should include the plan statistics, comparative industry statistics and surveys, comparison to peer employer plans, and participation rates.


A plan review can document and recognize milestones achieved in the goals set for that year as well as identify areas for improvement or deficiencies that can expose to fiduciary risk.


  • Best practices for promoting plan success:

  • Monitor trends in participation rates

  • Seek to improve contribution rates

  • Prudently offer a menu of investments that promote asset allocation and diversification

  • Educate participants with the goal of achieving financial literacy Promote retirement readiness

  • Monitor trends

  • Plan Design

  • Benchmarking

Plan Design

Changes to plan design may be triggered periodically by regulatory and legislative changes such as the PPA 2006 that provided new fiduciary protections for plan sponsors.


Changes in the age, participation levels and other employee demographic may trigger plan design changes. As your plan evolves and the workforce changes there will be opportunities to revamp the plan’s design.


Specific changing demographics may have a significant effect on your plan's structure and participants' retirement outcomes. For example, changes in employee demographics with rapid hiring and younger new hires tends to affect the plan's QDIA, choice of investments and participant communication and educational programs. Conversely, an employer evolving with more experienced employees with higher balances and approaching retirement may consider managed accounts, investment advice and risk-based asset allocation funds. As participant demographics change, the plan design should evolve to meet the participants' retirement goals.


Some plan sponsors may accelerate new hiring which causes significant changes in employee age groups, compensation and turnover.


As the employer’s participants change over time, the plan should revisit the peer benchmarking that it is using based on the changing profile of its participants. As the profile of employees changes or evolves, there may be other plan features that are more relevant to the needs of the population. In some cases, target date funds for new hires may also be supplemented with managed accounts as balances grow.


Plan sponsors are challenged to follow changing trends in retirement plans as the demographics of participants change over time.


Plan Documents

Fiduciary files should document any changes made to the plan document, amendments, administrative processes, plan design, compliance, eligibility or recordkeeping should be written, signed, dated and maintained as a part of the fiduciary files. Often changes require amendments to the plan document which should be reflected in the plan’s Summary Plan Description (SPD) given to the participants. In the case of major changes to the plan document, the updates and supplements should be reflected in the Summary of Material Modifications (SMM) which is also given to the plan’s participants.


Participant Disclosures

Under ERISA 404(a)(5) participant disclosures participants receive annual fund and fee disclosures. Annually participants should receive QDIA disclosures that provide fee information and fund performance against standard benchmarks. Any fund changes to the plan and the transfer of participant balances to a new fund require specific participant notices. The annual review should check that these disclosures and notices are being sent to participants on a timely basis and are correct.

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