Qualified Plans

 

 

 

Many plan sponsors are unaware of their fiduciary responsibility and liability. 

 

ERISA (Employee Retirement Income Security Act of 1974) defines a fiduciary as follows: "Every employee benefit plan shall be established and maintained pursuant to a written instrument.  Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan" (ERISA 402(a)(1)).

 

Based on ERISA's definition, fiduciaries are those named in the plan document.  However, just because a person isn't named in a plan document, doesn't mean they aren't considered a fiduciary by ERISA.

 

ERISA has also established that individuals or organizations my be considered fiduciaries as a result of their actions.

 

In other words, if an employer, administrator or plan sponsor is acting as a fiduciary they are considered a fiduciary even if they are not named as a fiduciary in the plan.

 

 

 

So why all the fuss about who is a fiduciary and who isn't?  

 

Because fiduciaires are responsible for plan losses if there is a breach of fiduciary duties.

 

According to ERISA, "Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary..." (ERISA 409(a)).

 

Because of this liability it is important that plan fiduciaries take the proper steps to protect themsleves from Department of Labor or IRS penalties and any loss that may result from ERISA and employee litigation.

 

 

 

It would be a mistake to think that good investment performance could alleviate plan sponsors and administrators of their fiduciary liability.  The process is just as important as the results. 

 

Plan fiduciaries are subject to the Prudent Man Rule which explains that a fiduciary is required to invest plan assets the same way the fiduciary would invest his or her own assets.  Investment performance is only one aspect of this.  There are a whole host of other issues that must be considered such as; investment costs, diversification, investment peer group performance ranking and plan administrative costs, to name a few.  

 

The Prudent Man Rule applies to both the result of the fiduciary's action and the action that created the result.  This means that the investment performance and the process followed to reach that result are considered in determining whether the fiduciary acted prudently.

 

 

Plan sponsors might also make the mistake of thinking that their custodian, financial advisor or third party administrator are acting as fiduciaries and protecting plan sponsors. 

 

Investment companies have gotten very good at burying in the fine print the fact that they are not taking on any fiduciary liability.  In addition, many financial advisors, especially with the larger firms, are prohibited from playing a fiduciary role on the plans they service.  

 

Neither are third party administrators fiduciaries, because even though they are making calculations to determine things like each participant's share of the contribution, which employees are eligible or the amount that must be paid to terminated employees, third party administrators are performing ministerial functions based on the provisions in the plan document and information provided by the plan sponsor.

In most scenarios, fiduciary liability lands squarely on the shoulders of plan sponsors and administrators, whether or not they are aware of it, with little or no help from investment or other financial professionals.  

 

 

Plan sponsors who try the "do it yourself" approach in addressing their fiduciary responsibilities could end up in hot water.

 

For example, there is a fine line between offering "investment advice" and investment education.  If employers are giving investment advice, these employers are liable for any potential losses their participants experience based on that advice.  A more prudent approach is to offer proper investment education programs and materials giving plan participants the knowledge and the tools they need to make investment decisions that are right for their own unique situations.

 

Also, simply delegating fiduciary responsibilities to third party professionals doesn't alleviate fiduciary liability of employers, plan sponsors and administrators.  If a third party commits a breach of fiduciary duty, the fiduciaries of the plan could still be liable if they have not followed proper fiduciary procedures in their oversight of the hired fiduciary.  The same thing goes for investment fund managers.  Even if fiduciaries appoint investment managers to invest the plan assets, fiduciaries must follow a prudent process in selecting the manager and monitoring the managers performance.

 

We can help with this process.

Our services are designed to help protect plan fiduciaries from personal and corporate liability while assisting plan participants with a successful retirement plan experience.  We do this through:

 

    -A sound investment due diligence process.

    -Vendor bechmarking, analyzing costs, negotiating pricing, and conversion assistance

     when necessary.

    -ERISA compliance including Investment Policy Statement, 404(c) and 404(a) compliance

     monitoring and review.

    -Plan design.

    -Employee communications.  On site workshops, one on one meetings. Enrollment 

     announcments and meetings.

 

Please contact us if you would like to discuss our services.  We recommend starting with a brief phone conversation to help understand your needs and objectives and, if appropriate, schedule a first meeting.