Ins and Outs of Fiduciary Outsourcing for Credit Unions

By: Richard W. Rausser, Senior Vice President of Client Services, Pentegra Retirement Services

With retirement plans seemingly becoming ever more complicated, outsourcing of fiduciary investment responsibilities has steadily become more commonplace. This is especially true in the case of the C-Suite at credit unions, which can find outsourcing very appealing.

Not only is the passing along of fiduciary responsibilities one less burden for credit union managers, allowing them to focus on day-to-day business and obviating the need for them to become qualified plan experts, but the practice can also serve to insulate them and their credit union from a number of risks.

Benefits of Outsourcing

Outsourcing to a sanctioned third-party fiduciary guarantees that a given plan’s documentation is up to date, complies with all laws and regulations, and delivers appropriate disclosures to plan participants and sponsors.

If a plan is large enough (meaning it has roughly 100 to 120 participants) it requires an independent auditor – the selection of which again can be provided by the external fiduciary, saving the credit union time and money. (It should be noted that investment fiduciary outsourcing can be appropriate for defined benefit and defined contribution plans of all sizes.)

In addition, the day-to-day management of a plan involves, among other things, making sure the plan is running as it should be; nuts and bolts record-keeping; and administrative decisions about such issues as a plan participant’s request for a loan or a hardship distribution.

Customizing Responsibilities

Arranging the responsibilities of a third-party fiduciary should be fairly easy to customize; one can outsource all of the above or cherry-pick whichever duties one wishes on an ala carte basis.

A credit union needs to provide a reputable third-party fiduciary with the following:

  • Data on the plan participants;
  • The money involved with the plan; and
  • A commitment to regularly review the plan’s performance (usually once a year).

In that way, any questions or concerns can be addressed efficiently. (Of course, any issues that rise before the review date can also be discussed at any time.)

Fiduciary Responsibility

If there are record-keeping errors made by the outside fiduciary, it is that fiduciary’s responsibility to make amends, including making up any monetary shortfall. In the unlikely case of a participant-filed lawsuit, the outside fiduciary is again front and center, providing the defense in the case and making good on any claims or settlements.

The credit union’s board and senior management are insulated from responsibility; even though the plan ultimately belongs to the credit union, it is the named fiduciary who holds the liability in such instances.

Such an arrangement can also be of value in the case of multiple employer plans (MEPs), an employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate. As each credit union has its own separate boards of directors, the advantages of having an independent fiduciary to manage and administrate the plan are readily apparent.

Credit Union Responsibilities

All of that said, there will remain some fiduciary responsibilities and liabilities for the fiduciary responsible for selecting and contracting with the outsourced fiduciary. Breach of contract is the most obvious of these, but there is also the matter of monitoring/reviewing with the outside fiduciary that I mentioned previously.

In addition – and this should go without saying – it is incumbent upon the relevant credit union executive to read all communiques from the third-party fiduciary, and to ask and follow through on any questions or concerns.

None of these duties should be particularly onerous, especially if you have chosen a reputable external fiduciary. When considering such a company – as you should with all outside vendors – “test drive the car”: Find out all you can about several different ones, ask lots of questions, and make as informed a final decision as possible.

Learn more from Rich by watching the recorded webinar: “Innovative Retirement Plan Design for Maximum Results.”

About Rich Rausser:
Richard W. Rausser has over 25 years of experience in the retirement benefits field. He is Senior Vice President of Client Services at Pentegra Retirement Services, a leading provider of retirement planning services to financial institutions and organizations nationwide, founded by the Federal Home Loan Bank System in 1943. Rich oversees Pentegra’s consulting, marketing and communications and actuarial service groups at Pentegra. He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA).

Pentegra_Logo_FinalPentegra is the NAFCU Preferred Partner for Qualified Retirement Plans for Credit Union Employees