Over the past few days, I have had various meetings with a number of very good benefit professionals to discuss the state of the union (at least as it relates to employee benefit packages).
Whether they were health or retirement plan service providers, or even legal counsel, we all seemed to agree that we may have reached the tipping point where rules and regulations have finally overwhelmed plan sponsors. It is now almost impossible for an employer to keep track of all the changes and necessary forms, notices and revisions required for complete plan administration on an entirely “in-house” basis. On the other hand, when the economy is tight, employers are loath to spend the money.
The simple truth is that it is no longer “reasonable” for plan sponsors to avoid having specialists assisting them in dealing with their benefit plans.
Under ERISA Section 404, a plan fiduciary has an obligation to act with the “care, skill, prudence and diligence” that a reasonably prudent person would act in similar circumstances. But that standard is the base line, not the top limit. The proliferation of specialists in the benefits marketplace almost mandates that the definition of “reasonable” under ERISA expands to include the use of these specialists.
Thus, we should anticipate that real prudence is doing more than just the minimum, and real diligence means doing more than just enough to get by. The increasing specialization of service providers requires that fiduciaries diligently seek out experts who add value and they have to retain those specialists to provide services to the plan, and ultimately to maximize the effectiveness of the plan for the benefit of the plan beneficiaries.
Consider the new fee disclosure rules. Now fiduciaries have to review, understand, digest and report how fees are charged and have to show efforts to minimize those costs to plan participants. The Patient Protection and Affordable Care Act requires us to compare, contrast and explain our plans and rationalize our actions to participants.
Employers that fail to engage professionals for assistance because of concerns over cost are begging for more expensive future problems. The cost of non-compliance will always be much higher than what compliance would have cost in the first place. When I am going through an audit with a regulatory agency, it is hard to justify problems with a plan by explaining how the employer did not want to pay for expert guidance in the first place.
Also, there is the benefit of having assistance in long-range planning. Reactionary decisions in this area are always more costly than a well-thought-out approach. You would not start a business on a whim with no plan. You should not approach your benefits packages any differently. Sure, professionals, like benefits attorneys or consultants, cost money.
But there is return on that investment in the form of more efficient, more effective and more compliant benefits packages. Plus, having these retained professionals provides a security that, as a fiduciary, you are acting with diligence, care and prudence by not going it alone.
In the end, that is what benefit professionals are there for: To provide assistance with compliance and adherence to the regulations. Earnest fiduciaries seek out good professionals and engage them to help with plan administration so that they are can truly be called “prudent.”
Keith R. McMurdy is a partner with Fox Rothschild LLP.