Plan Sponsors’ Internal Controls Key to Effective Governance

Many plan sponsors seek the assistance of TPAs with the functions and responsibilities associated with running a retirement plan, but that does not absolve a plan sponsor from all responsibility. A recent blog entry argues that internal controls are key to fulfilling the duties plan sponsors can’t outsource, as well as to managing the relationship with outside service providers.

 

Diane Wasser, the Partner-in-Charge of EisnerAmper LLP’s New Jersey office and founder and Partner-in-Charge of the firm’s Pension Services Group, examines sample plan controls and user controls related to a plan’s third-party service providers in “Employee Benefit Plans: Internal Controls for Processes and Governance,” an entry in the firm’s blog.

Outsourcing may be common, says Wasser, a plan sponsor cannot farm out all of its responsibilities for the plan. Plan sponsors often ignore operations and internal controls, she writes, and posits that plan management sometimes behaves “as if the plan is on autopilot.” And Wasser writes that third party service providers make the plan sponsor’s responsibilities clear, but those plan sponsors generally overlook them anyway.

 

“Most problems we see occur from the lack of both oversight and attention to a plan’s governing documents and service agreements,” Wasser says. For instance, she notes that a plan sponsor maintains:

 

The most common operational problems, Wasser says, include:

 

 

Wasser argues that strong plan governance and implementing internal controls can help in complying with applicable laws and regulations. Those include preventative controls—to discourage errors or fraud—and detective controls are designed to identify errors or fraud that have taken place.
Internal controls can include:

 

 

Outsourcing is ideal for variety of functions, says Wasser, such as: 

 

But even when outsourcing, a plan sponsor needs to be attentive. For instance, she suggests review of third-party service provider system and organization control reports, including complementary user controls. She also suggests that subsidiary contribution records be reconciled to the trustee/asset custodian or third-party administrator reports.

 

 

“Plan operations should be taken seriously, and plan sponsors should take the time to understand their responsibilities, because they are making a fiduciary decision to engage their service providers to provide the processing of plan transactions,” argues Wasser.