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Jul 27, 2020

Many companies (plan sponsors) have implemented employee benefit plans to attract new talent or to reward and retain existing employees.   What some fail to realize is that with the introduction of that benefit comes a tremendous amount of challenges and fiduciary responsibility in administering the plan.  The entire employee benefit plan industry is under greater scrutiny than ever before.  With plan participants filing lawsuits, fiduciary failures in the news, and the Department of Labor taking a much closer look at the operation of retirement plans, the actions of plan fiduciaries are also under a microscope.  Therefore, it is imperative that plan fiduciaries understand the obligation and immense accountability that they have to plan participants and beneficiaries. 

In order to understand a fiduciary's role and responsibility, it is crucial to first understand who (or what) is a fiduciary. All ERISA ("Employee Retirement Insurance Security Act") plans must have at least one fiduciary that is named in the plan document. The fiduciary can be either a person or an entity. Often, it is an administrative committee or a company's board of directors.   Generally, fiduciaries will include the trustee, plan administrator, investment advisor, members of the administrative or investment committee, and those who selected the committee members—this is spelled out in ERISA. Additionally, there are other fiduciaries—not because of their title or position, but because of the duties they are performing.  Simply, anyone that exercises discretion in administrating or managing the plan or controlling the plan's assets is a functional fiduciary.

There are important responsibilities and significant standards imposed on fiduciaries. The basic standards that fiduciaries are bound by are:

  1. To always act solely in the best interest of the plan participants and beneficiaries (Exclusive Benefit Rule).
  2. To act with care, skill, prudence and diligence with every decision (Prudent Man Rule).
  3. To offer a diversified amount of investment choices in order to minimize the risk of loss,
  4. To operate the plan according to the plan documents except where they are inconsistent with ERISA, and
  5. To pay reasonable and necessary expenses of the plan.

The most successfully run plans all have one common thread… and that is that the plan fiduciaries completely understand the importance of their roles and take their responsibility very seriously. Failure to abide by one's fiduciary duties can result in personal liability, which may include monetary penalties and even incarceration.

The following is a list of some best practices for Plan Sponsors to consider:

  1. Identify plan fiduciaries, clearly designate the responsibility of each and ensure that each fiduciary clearly understands the magnitude of their duties. (Some plan sponsors refer to their documented fiduciaries as their retirement committee.)
  2. Provide ongoing fiduciary training.
  3. Establish an investment committee.
  4. Develop an investment policy statement and ensure that it is monitored and reevaluated on a regular basis.
  5. Maintain minutes from all committee meetings and memorialize all decisions regarding the operation of the plan and investments.
  6. Maintain fiduciary liability insurance and a fidelity bond policy.
  7. Retain plan records and ensure that all required filings are done.
  8. Hire qualified third-party providers with employee benefit plan experience including a custodian, record keeper, ERISA attorney, and auditor.
  9. Document the hiring process and the due diligence performed in determining the best provider.
  10. Monitor all third-party providers on a regular basis and document such a review.
  11. Identify all parties-in-interest to the plan and monitor transactions with them.

Click here to obtain the AICPA Employee Benefit Plan Audit Quality Center's plan advisory entitled "Meeting Your Fiduciary Responsibilities."


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