As a retirement plan sponsor, to ensure your organization is compliant with the Employee Retirement Income Security Act (ERISA) regulations, it’s critical to understand everyone’s role as it relates to fiduciary responsibility.
Although a person’s fiduciary status under ERISA is typically determined by the person’s function rather than title, persons holding the following titles will automatically be considered fiduciaries:
1. Plan Administrator
Per ERISA, businesses must have a “plan administrator” designated under their plan. The plan administrator is responsible for managing the plan’s daily operations. These responsibilities are determined by ERISA and the terms of the plan. An individual, a committee, or the plan’s sponsoring employer can function as the plan administrator.
Your retirement plan’s trustee has exclusive authority to manage and control plan assets. Some plans may also use a “directed” trustee, whose duties are subject to the direction and oversight of a fiduciary who is not the trustee.
3. Named Fiduciary
ERISA requirements state the plan document shall provide for one or more “named fiduciaries” that jointly or severally have authority to control and manage the operation and administration of the plan.
Many plans designate a single “named fiduciary,” such as a retirement plan committee, but the plan document can identify more than one named fiduciary and distribute fiduciary duties among them. For example, a plan document might list two committees as “named fiduciaries.” One committee might be tasked with selecting and monitoring plan investments, and another committee may be responsible for overseeing all other plan administration tasks and compliance efforts.
4. Many “C-Suite” Executives
While there is no specific requirement that company executives, such as the CEO or CFO, will automatically be considered fiduciaries, by the nature of the position these individuals are very commonly named when discussing those held to fiduciary standards for your plan.
Beware of Developing an Accidental Fiduciary
Be careful to avoid developing an accidental fiduciary! This would be an individual who is responsible for administering a plan but is not intended to be a plan fiduciary.
Let’s say there is an individual involved with plan administration on a ministerial level. This person could become an accidental fiduciary if they exercised individual discretion and interpretation over provisions of the plan document or the plan’s written procedures.
This person could put your organization in a very vulnerable position, especially if the individual is not compensated by the plan sponsor or covered by the plan sponsor’s fiduciary liability insurance policy.
The best defense is to carefully define plan-related roles and responsibilities to avoid creating an accidental fiduciary in the first place.
Does your work demonstrate a prudent fiduciary process?
Engaging in a prudent fiduciary process is your best line of defense, instead of having to show, after the fact, that a prudent fiduciary would have come to the same conclusion.
With investment advisors serving as the most common third-party plan fiduciaries, you should review any advisory agreements with a fine-tooth comb to determine whether your existing plan advisor:
- Accepts liability
- Protects you as a plan sponsor
- Limits your rights and recourse as a sponsor (or those of your employees and plan beneficiaries) under ERISA
If you determine your advisor is not a fiduciary, then business owners and senior leaders need to question whether your company is comfortable assuming that level of risk, and possibly reevaluate the purpose your advisor is serving.
Whether you realize it or not, the standard of professional responsibility has been set for all retirement plan sponsors by ERISA. As a result, you should be able to demonstrate you’ve conducted the proper due diligence to satisfy this professional responsibility. This can include preparing an RFI for recordkeeping costs, confirming vendor fiduciary commitments, identifying potential conflicts of interest, and a variety of other critical hazards.
If you aren’t sure what questions to ask or how to accomplish these tasks, the best course is to get help.
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