Estimated reading time: 5 minutes
Key Takeaways
- Under ERISA, fiduciaries are judged on process, not investment results.
- Five documents demonstrate that process: a current IPS, committee minutes with reasoning, dated fee benchmarking, evidence of monitoring, and a record of how underperformance was handled.
- Most sponsors can produce two of the five, and that’s fixable, not a violation. A governance calendar, run consistently for twelve months, produces a file a sponsor can hand to anyone who asks.
Most conversations about retirement plan compliance focus on deadlines: File the 5500. Run the testing. Send the notices.
Those matter, and most plans handle them. But if a regulator or an auditor asks a plan sponsor to demonstrate that the plan has been managed prudently, deadlines aren’t what gets produced. Documents are.
There are five of them, and in our experience most sponsors can produce two.
1. A Current Investment Policy Statement
An Investment Policy Statement sets out how the plan’s investments will be chosen, what criteria they will be measured against, and what happens when a fund stops meeting those criteria.
ERISA doesn’t require one. What ERISA requires is a prudent process, and an IPS is the most direct evidence that one exists.
Two failure modes are common. The first isn’t having one at all. The second is having one written years ago that describes a process nobody follows, which is arguably worse, because it documents a standard the plan isn’t meeting.
2. Committee Minutes That Record Reasoning
This is the document most often missing and most often misunderstood.
Plenty of sponsors keep minutes. Fewer keep minutes that record why a decision was made rather than only what was decided. The difference matters, because ERISA judges fiduciaries on process, and the reasoning is the process.
Consider a fund that has underperformed its benchmark for four consecutive quarters. The committee reviews it and decides to keep it. That’s a perfectly defensible decision, and it may well be the right one. Recorded as “committee voted to retain,” it looks indistinguishable from having ignored the problem. Recorded with the reasoning, it’s evidence of exactly the kind of deliberation the standard asks for.
3. A Dated Fee Benchmarking Analysis
Fee reasonableness is a fiduciary obligation, not a budgeting preference. And reasonableness is a comparison, which means it requires something to compare against.
A sponsor who has never benchmarked can’t claim to have evaluated whether the plan’s fees are reasonable, regardless of what the plan actually costs. The plan may be inexpensive. Without a benchmark there’s no record of the evaluation.
Once every three to five years is the working standard. What matters as much as the cadence is that the analysis is dated and retained.
4. Evidence of Investment Monitoring
Performance reports aren’t monitoring. A stack of quarterly statements shows that information arrived. It doesn’t show that anyone reviewed it against stated criteria.
Monitoring is the review itself: the criteria, the comparison, and the conclusion. It’s what connects the IPS to the minutes, and it’s where a documented process either holds together or falls apart.
5. A Record of What Happened When a Fund Underperformed
Every lineup eventually has one. What a sponsor did about it, and why, is a direct test of whether the process is real or aspirational.
The outcome doesn’t need to be a replacement. Retention with recorded reasoning is a legitimate answer. Silence isn’t an answer at all.
If You Can’t Produce Most of These
You’re in ordinary company, and this is a fixable problem rather than a crisis.
The practical answer is a governance calendar. Quarterly reviews with minutes that capture reasoning. An annual look at fees, design and compliance together. Benchmarking on a defined multi-year cycle. An IPS that reflects what the committee actually does. Fiduciary training for committee members, itself documented, because training is evidence of prudence.
None of that’s difficult. It’s just work that nobody has been assigned.
Twelve months of it produces a file a sponsor can hand to anyone who asks. Most plans have never had one.
Marshall+Sterling Wealth Advisors, Inc. is a registered investment adviser. Marshall+Sterling Wealth Advisors, Inc. does not provide tax or legal services. This article is educational and does not constitute legal, tax, or investment advice.
Frequently Asked Questions About DOL Audit Preparation
ERISA doesn’t mandate one. It requires a prudent process, and an Investment Policy Statement is the most direct evidence that a documented process exists.
Every three to five years is a commonly applied standard. What matters as much as the interval is that the analysis is dated and retained as part of the plan’s records.
Attendees, materials reviewed, decisions made, and the reasoning behind each decision, including any decision to take no action.
