Understanding Your Responsibilities as an ERISA Fiduciary

The Employee Retirement Income Security Act (ERISA) was set up to protect benefit plan assets and requires those who exercise or provide discretionary control or responsibility over the plan to be subject to fiduciary responsibilities. Fiduciaries can include plan sponsors, plan administrators, plan trustees, investment advisors, and other service providers for the plan.

Fiduciaries have a legal obligation to act in the best interests of the plan, and they are subject to certain standards of conduct and can be held liable for any breaches in their fiduciary duty.

Review some techniques and recommended practices that can help you successfully fulfill your role as an ERISA plan fiduciary.

Establish and monitor the key players

Many times, plan sponsors will set up a monitoring or governing body for the plan, such as a retirement committee or investment committee, which could include all potential fiduciaries listed above, plus others like employees and plan participants. A person or entity can be defined as a fiduciary based on their role in relation to the plan, not just their title.

Fiduciary responsibilities can be shared among other parties, but the ultimate responsibility for oversight remains with the governing body of the plan. Those charged with responsibility should:

• Regularly evaluate the performance and fees of vendors and service providers such as record-keepers, trustees, and investment advisors, and verify they are fulfilling their obligations under the plan.
• Communicate plan information clearly and regularly to participants. Provide easy-to-understand fee disclosures, investment updates, and access to educational resources.

Understand your fiduciary duty

Familiarize yourself with your fiduciary obligations under ERISA, including the duty of loyalty, prudent decision-making, diversification of investments, and adhering to plan documents. Some fiduciary responsibilities include:

• Making investment decisions on behalf of the plan, including choosing appropriate investments for plan participants to invest their contributions in a 401(k) plan. (Plan sponsors may choose to hire an independent fiduciary to help handle investments and investment decision making.)
• Monitoring plan performance, plan operations, plan provisions, and benefits provided.
• Avoiding prohibited plan transactions.
• Verifying plan fees and expenses are reasonable.
• Disclosing necessary and appropriate information to plan participants regarding plan provisions, benefits, investments, fees and expenses, and other plan information.
• Reporting and disclosing all required information from a regulatory perspective, including government forms and annual audited financial statements.

A key component to fulfilling your fiduciary responsibilities is acting prudently. A plan fiduciary can demonstrate prudence by not only having the necessary skills, knowledge, and experience, but by documenting the key factors of the processes and decision making on behalf of the plan — such as hiring service providers to serve as plan fiduciaries.

Limit your liability

Fiduciaries can be held personally liable for breach of their duties, and authorities can (and have been known to) take action against fiduciaries who have not acted appropriately. In some cases, plan sponsors and other fiduciaries may be required to obtain fidelity bonds or insurance coverage.

You can limit your liability in certain situations by implementing strong governance and establishing formal decision-making processes within your organization:

• Educate yourself and stay updated on ERISA regulations and leading practices by attending seminars, workshops, and educational programs related to ERISA compliance.
• Keep comprehensive records of all plan-related activities, including meeting minutes, investment decisions, communications, and fee disclosures.
• Help reduce risk by appropriately diversifying the plan’s investments. Conduct due diligence on investment options and regularly review their performance.
• Assess the performance of investment managers and service providers and evaluate whether they align with the plan’s objectives.
• Seek professional guidance. If you feel uncertain about any aspect of your fiduciary duties, consider consulting with legal and financial professionals who specialize in ERISA compliance.

The DOL and IRS have a number of tools, articles and resources designed to educate plan fiduciaries and help them fulfill their responsibilities to the plan and plan participants.

How we can help

Understanding and fulfilling your fiduciary duties is an ongoing process requiring continuous attention and diligence. CLA’s benefit plan professionals can help you regularly reassess your practices to maintain compliance with ERISA regulations and protect the interests of the plan and its participants.