Part of a trustee’s fiduciary responsibility is to manage the income and expenses of their plan. Below are some of the ways in which a trustee can increase revenue coming into the plan while managing the costs associated with the plan.
The primary sources of income of a multi-employer benefit plan are employer contributions and investment income.
- Increase collections: To increase the income of a plan, trustees should carefully consider their processes for collecting employer contributions. Potentially increasing the number of payroll audits performed could discover additional contributions that are due to the plan. Establishing an aggressive collection policy might aid in the timely collection of employer contributions while keeping legal fees for the collection of older delinquent contributions in check.
- Increase investment income: To increase investment income, trustees may consider investing in alternative investments, such as real estate, hedge funds, private equity, derivatives and commodities. However, along with the potential of higher returns on these types of investments also comes higher risk. Trustees should consult with a trusted investment advisor regarding the allocation of plan assets.
There are several methods a trustee may consider when looking to reduce the expenses paid by their plan. However, trustees should also keep in mind that choosing the lowest cost option may not always be the prudent choice. In most cases, lower cost means lower quality, which can increase issues in the future that ultimately become more costly.
- Evaluate operations: An internal or external review of operations can determine if plan resources are being used effectively and efficiently, as well as identify areas in which improvements can be made. Some of the possible areas that should be evaluated are the plan’s spending on supplies, equipment and postage. What is the plan’s policy for safeguarding these assets to ensure they are properly used? Does the plan have agreements in place to purchase materials in bulk to reduce pricing?
- Evaluate technology: The plan may benefit from an assessment of the computer systems to ensure they are working effectively and that plan personnel understand how to operate the technology appropriately and efficiently. Trustees should also consider implementing a disaster recovery program. In the event of a disaster, the loss of computer files, software, and office space can be costly and difficult to replace. It is wise to develop a proper plan to avoid loss and arrange for how the plan will be restored.
- Evaluate investment fees: Increased pressure has been placed on investment managers to disclose the costs that are associated with the management of investments. Trustees should closely evaluate the fees that the plan pays for each investment. Trustees should negotiate fees and consider arrangements that are based on a manager’s performance rather than the size of plan assets.
- Evaluate plan compliance: Ensuring that the plan is operating according to the plan’s provisions and government regulations can decrease instances of incorrect payments to participants, as well as reduce the risk that the plan will incur the need for expensive corrections.
These are just a few ideas for trustees to consider for improving the cash flows of their benefit plans. For more information please do not hesitate to contact us by filling out the form below.
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