As a compliance consulting and third party administration firm, we receive many inquiries from advisors and plan sponsors about their duty as a fiduciary. With recent rulings and news headlines relating to fiduciary requirements in regards to qualified retirement plans, plan sponsors and advisors are scrambling to ascertain whether they’re meeting their fiduciary responsibilities. Want to avoid litigation while better serving your plan participants or clients? Follow through on the suggestions below, and remember, being a fiduciary first and foremost means always acting in the best interest of the plan participants above all else.
To begin, we’ll need to understand ERISA. ERISA (Employee Retirement Income Security Act) is the federal law enacted in 1974 that regulates employee benefit plans. Under this law, fiduciary obligations are imposed on Plan Sponsors as a standard of care for choosing and monitoring the plan’s investments as well as service providers whose fees affect the plan participants’ accounts. This means the employer sponsoring said plan can be held liable for any investment losses suffered by plan participants if those losses are the result of a failure on the employer’s part to follow through with their fiduciary duties.
So, how do you determine who the fiduciary or fiduciaries to your plan are?
An alarming 37% of plan sponsors, committee members and administrators stated they do not consider themselves a fiduciary, according to the “Mind of Plan Sponsors Survey Report.”
Being a plan fiduciary has nothing to do with a person’s title, but rather the duties they perform in relation to the plan. A plan’s fiduciary usually includes the following: the plan sponsor, and may include the investment advisers. Anyone exercising discretion in the administration of the plan is a fiduciary. The committee administering the plan and those who select the committee are fiduciaries as well. The determining factor in whether or not someone is a fiduciary is if they are “exercising discretion or control over the plan” according to the DOL’s Fiduciary Guide.
Now that you’re able to identify those acting as fiduciaries over your plan, you can create your committee and build a team to ensure all fiduciary functions are being performed. Choose wisely when adding team members to delegate duties to. You will still be responsible for their actions.
The next step is understanding section 404 of ERISA. This section supplies the standards on which fiduciary obligations are based. There are 5 basic standards fiduciaries must follow if they plan to properly execute their duties:
The final recommendation we can make is a very simple one: communicate.
If you make frequent and fluid communication between all those who work with the plan a priority, you avoid confusion and misinformation. If a change or update is needed to your plan (investments, plan documents, etc.) seek advice from your expert advisors first, document the changes, then communicate the changes to your committee, plan administrator, compliance consultant and record keeper. By following up with each of your service providers, you are allowing them to do their job to its fullest extent and, in many cases, saving yourself on cost.
There is still much be discussed and many more decisions will most likely come down involving the role of fiduciaries. However, safe guarding yourself now and following through with best practice procedures can save you time, money and headache later. If you keep in mind that a fiduciary’s role is to prudently select and monitor investments and service providers with your participants’ best interests in mind, these steps will come naturally.
-TriStar Pension Consulting
Note: This article is not meant to be a comprehensive illustration or documentation of all policies and procedures regarding fiduciary obligation, nor is it an all-encompassing guide to the role of a fiduciary.
These are merely suggestions as to best practice for fiduciaries.