Am I A Fiduciary Of Our Employer-Sponsored Retirement Plan?

February 12th, 2008

At the end of 2006, a number of class-action lawsuits were brought against plan sponsors and other plan fiduciaries of several Fortune 500 companies, alleging breach of fiduciary duties for subjecting plan participants to non-disclosed, excessive fees and expenses.  During 2007, some of these suits were dismissed, but the filing of the suits has raised the public’s awareness of the duties of a fiduciary, and heightened the scrutiny of a plan fiduciary’s actions.

In general, an individual becomes a fiduciary either by title or by action.  Under ERISA, plans are usually required to name a specific person, organization or association who will act as fiduciary.  Additionally, ERISA contains a definition of a fiduciary that can create the duties by action:  a fiduciary is a person or entity which takes any of the following actions with regard to a retirement plan –

  • Exercises control or influence over the management of the plan or it’s assets
  • Provides investment advice on plan assets for compensation
  • Has discretionary authority over the plan’s administration

Because of this broad definition, plan sponsors are almost always considered fiduciaries of their retirement plans, even if they have assigned other fiduciaries to manage the plan.

Fiduciaries are required to act with prudence and in the best interests of the plan and its participants and beneficiaries.  Under ERISA, if a fiduciary relies on the outside service providers/organizations in performing his/her duties, the original fiduciary must establish guidelines with which to monitor and ensure that the service provider/organization is acting within the requirements of a fiduciary – that is, prudently and in the best interests of the plan and its participants and beneficiaries.  Additionally, ERISA specifically addresses prohibited transactions that constitute a breach of fiduciary duty.  A plan fiduciary breaches his/her fiduciary duties by engaging in or allowing certain transactions between the plan and a “party-in-interest”, including lending of money, furnishing goods and services, and the using of plan assets for personal benefit. 

All fiduciaries to retirement plans (including plan sponsors) must take their fiduciary responsibilities very seriously.  It is a fiduciary’s duty to fully understand their duties to the plan, as well as the duties owed by all other plan fiduciaries.  A few areas that plan sponsors commonly neglect, which can leave a plan sponsor exposed to fiduciary risk are:

  • Ensuring that actual plan operations are in compliance with all governing plan documents and established procedures
  • Appointing a policy committee/individual to be responsible for the oversight of the retirement plan’s policies without providing the advice or training on the required duties and responsibilities of a fiduciary
  • Appointing an investment committee/individual to be responsible for the oversight of the retirement plan’s investment strategy without providing the advise and training on the required duties and responsibilities of a fiduciary

Employers who sponsor retirement plans are usually considered to be plan fiduciaries under ERISA, and are therefore exposed to the possibility of suits by plan participants for a breach of that fiduciary duty.  Employers should consult with an employee benefits attorney to either develop policies and procedures for their sponsored retirement plan, or review and amend the existing processes.  This advice and assistance can be invaluable in limiting a plan fiduciaries’ exposure to risk.

One Response to “Am I A Fiduciary Of Our Employer-Sponsored Retirement Plan?”

  1. Sue Masseyon 12 Feb 2008 at 3:40 pm

    I found your site on google blog search and read a few of your other posts. Keep up the good work. Just added your RSS feed to my feed reader. Look forward to reading more from you.

    – Sue.

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