The Joseph Group

Annual Due Diligence

June 29, 2022

As a plan sponsor, one of the most important things you can do each year is sit down and review the retirement plan. You may be asking yourself “why?” or perhaps the plan tends to be out of sight, out of mind so you feel like everything is running smoothly. It’s certainly possible that the plan is perfectly fine, but it could also be that there are a couple quick changes to really make the plan effective. In some rarer circumstances, there are problems brewing beneath the surface that could cost plan sponsors dearly if not corrected. Regardless, as a plan sponsor it is prudent to have an annual plan review and to document them. This is especially helpful if the DOL or IRS come calling so you can hand over the due diligence documentation.

Our team at The Joseph Group has put together a process to make this review easy to digest for business owners and decision makers. Often times, our clients find they can complete the process in an hour and walk away knowing their plan is heading in the right direction. While due diligence can take on many forms, we primarily focus on three main points during the meetings.

Core Lineup: The top reason plan sponsors find themselves in hot water with the DOL or IRS is typically due to neglecting part or all of the core fund lineup. As a fiduciary (or co-fiduciary) it is your duty to act in the best interest of all plan participants. That means having a healthy lineup that has broad coverage of investment markets, knowing what options are being provided, and generally how those funds perform over time compared to their peers. It’s not expected that plan sponsors become “investment gurus” but you are expected to hire trustworthy plan advisors to educate and guide you through the process. What we see most often is that when a plan has a major issue and ends up in court, lawsuits can tend to stem from investment options that have fallen out of favor yet remain in the lineup for long periods of time or these funds have excessive fees based on the type of investment funds.

Plan Metrics: A key component of the review is going through various plan metrics like participation rate and average deferral rates. This is important as it gives plan sponsors an idea for how their team is using the plan. It’s important for plan sponsors to understand how their team is (or is not) using the plan and in some cases lends itself to broader plan design conversations. While plan design can be driven by a multitude of reasons, team usage certainly plays a role in that discussion.

Plan Fee Benchmarking: Last, but certainly not least, is reviewing the plan’s provider fees versus applicable third-party benchmarks to evaluate where the plan stands in terms of its peer group. The most important “result” is not that the plan is the cheapest, or even exactly in line with the benchmark, although you certainly want to be cognizant of the peer group. The goal is to evaluate if the plan provider’s service(s) are accomplishing their intended goals and the fees are reasonable for services provided.

There are several other retirement plan factors to review when completing an annual due diligence review such as relationships with vendors, service and other fiduciary tasks. This is also a great opportunity to put together a financial education program for your employees or get the process started.

If you are looking at your plan for possible red flags, below are a few that we see commonly.

  • Proprietary Funds: Are there a number of funds in your core lineup that are being managed by your service providers?
  • Index Funds: Are you providing your employees with an all indexed fund lineup? Or no index funds at all?
  • Expensive Funds: Do any or many of your funds tend to have higher expense ratios?
  • Rapid Participation Decrease: Did your plan experience a rapid decrease in participation rate?
  • Time: If you can’t remember the last time you reviewed the plan, now is the time to sit down and go through it.

These are only a few of several possible red flags, but some we commonly find inside of retirement plans that indicate it is time for a review. If any of these red flags ring true to you, please reach out to me. We have a proven process of reviewing plans and we would love to provide you a complimentary review.





Written by Matt Kruckenberg, Manager of Retirement Plan Services. Matt can be reached at 614-907-8639 or matt.kruckenberg@josephgroup.com