The Top Mistakes Plan Sponsors Make: Part 1

The Top Mistakes Plan Sponsors Make: Part 1

July 22, 2022

Sponsoring a workplace retirement plan, though a noble endeavor, does come with a need for prudent oversight. Complying with ERISA regulations, understanding fiduciary responsibilities, and staying up to date on the ever-changing tax laws are just a few of the challenges plan sponsors have to navigate.

Because of these challenges, it’s not uncommon for many plan sponsors to make mistakes. But at DCS Pensionmark, we know that making a mistake as a sponsor of a qualified retirement plan can result in significant consequences, whether it be penalties, fees, or losing qualified status altogether.

In this two-part guide, we’ll cover the biggest mistakes we see retirement plan sponsors make and what you can do to avoid them. We’ll cover the top investment management mistakes in this article with a follow-up article covering plan administration and operation-level mistakes next month.

1. Not Having a Defined Prudent Process

In the midst of all the decisions that have to be made as a qualified retirement plan sponsor, sometimes it’s hard to stay organized or nail down a specific process for how things should be handled. This is a big mistake that plan sponsors should try to avoid at all costs.

As a fiduciary in charge of handling your employees’ hard-earned retirement assets, the Department of Labor wants to see that you are operating like a well-oiled machine, with a defined process for:

  • Organization
  • Formalization
  • Implementation
  • Monitoring

The DOL doesn’t expect you to necessarily choose the lowest cost or highest performing investments of the moment, but you have to maintain a cohesive process so that your reasoning for important decisions like investment choices is clearly identifiable and easy to follow. Not only does this protect you as a plan sponsor in case of an audit, but it also protects the plan participants by reducing your odds of making a costly investment mistake.

Be sure to define and implement a prudent process for selecting and monitoring both service providers and plan investments. Plan sponsors have an obligation to keep their plan expenses reasonable, which means they are required to evaluate the performance and fees of their service providers. Make it a habit to review annual updates from your service providers to ensure their performance and fees are in the best interest of your participants. This will help you stay compliant and maintain your fiduciary duty as a retirement plan sponsor.

2. Not Having an Investment Plan Policy

The goal of a retirement plan is to help participants save for retirement through investments. Plan sponsors have a significant responsibility to work with an advisor to select appropriate investments, replace poor performers, and verify that the fees are reasonable. It’s critical to create and follow an Investment Policy Statement (IPS) to keep your plan’s investments up to date and within DOL guidelines. While an IPS is not legally required for retirement plans, most qualified retirement plan advisors agree it is essential.

Revising the IPS periodically is important to ensure it maintains compliance with changing laws. Also, be sure that the IPS aligns with your plan’s documentation and does not conflict in any way. A well-structured, well-followed IPS does more harm than good if it conflicts with the plan document.

3. Not Maintaining Proper Plan Documentation

Retirement plan sponsors are required by law to keep extensive books and records both for the IRS and EBSA. Maintaining proper documentation will not only keep you prepared in case of an audit but will also help you avoid mistakes in other areas of plan administration.

For example, proper documentation can help you make the right decisions about investments and service providers because you have the records to back up your reasoning, including assessments of performance, risk level, and fees.

Plan documentation usually starts out very organized because it has to be in order for the retirement plan to be qualified and approved by the government in the first place. Over time, however, it can be hard to maintain, especially if there are a lot of participants or if there are changes to the plan’s structure. Avoid this pitfall by prioritizing proper documentation and ongoing organization, periodically reviewing when you can.

Are You Making Some of These Mistakes?

Designing and administering an employer-sponsored retirement plan is hard. Don’t let these common investment management mistakes make it harder. At DCS Pensionmark, we are here to help plan sponsors navigate their responsibilities with confidence. If you would like guidance on how to avoid or correct any of these mistakes, email me at to get started today. And don’t forget to check out the second part of this guide that will be posted next month!

About Dan

Dan Shapiro is a retirement plan advisor and holds the Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor certifications. With over 30 years of experience in the industry, Dan guides his clients through the entire retirement plan process, from plan design to compliance to investment oversight. His goal is to provide his plan sponsor clients with the ability to offer the right retirement plan the right way to their employees—a plan they can be proud of. He is one of the original 100 Accredited Investment Fiduciary® practitioners in the United States and uses his knowledge and experience to implement best fiduciary practices to ensure employees have appropriate investments to choose from and employers have a well-documented fiduciary process in place to mitigate risk. Dan is known for taking the time to understand his clients’ unique goals and situations and applying his holistic approach to customize and develop tailored strategies to improve outcomes and take some of the plan sponsor burden off their shoulders.

When he’s not working, you can find Dan at the park and marina near his house training his Australian Shepherd. He cherishes his frequent FaceTime calls with his grown children who live in Israel. In fact, Dan and his wife, Rita, consider their proudest life achievement to be raising their two children, Ashley and Joshua, to be productive and principled adults. Dan and Rita love to entertain, especially when it includes making great food with the smoker and barbeque. To learn more about Dan, connect with him on LinkedIn.

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).