Offering employee benefits such as retirement and health and welfare plans can be an effective morale booster and a retention tool. However, when these plans are subject to ERISA, the plan sponsor takes on significant responsibilities. The sponsor must name a fiduciary, which, if done correctly, can be shared with or delegated to a qualified service provider. Hiring a co-fiduciary, though, is not a license to abdicate the named fiduciary's oversight of the plan's operations.
The fiduciary title is earned based upon the functions that are (or should be) performed for the plan. At least one fiduciary is required to be named in the plan document. Those who generally hold some fiduciary responsibility for the plan are:
- Investment advisor(s)
- Persons exercising any discretion in operating the plan
- Members of the plan’s administrative committee (if one exists)
- Those who select committee officials
This list does not include the attorney, accountant, or actuary.
Fiduciaries exercise their duties by:
- Acting solely in the interest of plan participants and their beneficiaries for the purpose of providing benefits
- Carrying out their duties
- Following the plan documents, as long as the document is consistent with ERISA
- Diversifying plan assets
- Paying only reasonable plan expenses from plan assets
The fiduciary’s primary goal is to ensure that the plan is operated in accordance with the plan document, assuming the document is ERISA compliant. For most plans, the following are primary responsibilities for the fiduciary:
- Hiring co-fiduciaries and monitoring their efforts
- Ensuring that employee contributions (if any) are collected and deposited into the plan in a timely fashion
- Evaluating and hiring service providers, including assessing the qualifications, expertise, and experience of investment advisors, actuaries, and accountants
- Determining that fees paid from plan assets are reasonable and in line with those of other competent service providers
- Monitoring service providers to ensure agreed upon services are completed
- Evaluating changes to service provider compensation
- Asking about service provider policies and practices
- Reviewing performance
- Checking actual fees charged
- Following up on participant complaints
Whenever plans include participant-directed investments, the fiduciary must regularly take steps to inform the participants of their rights and responsibilities under the plan related to directing their investments into their accounts. This includes, but is not limited to, the fees and expenses involved in the available investments selections.
For 401(k) plans, it is good practice to provide education so participants can make informed decisions about the suitability of investments for their accounts. If this is outsourced to an investment advisor, the mere step of hiring the advisor is a fiduciary act.
Finally, fiduciaries are prohibited from self-dealing and must avoid conflicts of interest that could harm the plan.
Acting prudently, wisely, and with an appropriate level of expertise are the keys to limiting liability for failure to follow basic standards. Documenting decisions and actions decided or taken are best fiduciary practice.