Under the Employment Retirement Income Security Act (ERISA), employers are not obligated to provide employee benefit plans, but if they do, they must meet the requirements set forth in ERISA. ERISA applies to private employer retirement plan, not public ones.
What is a Fiduciary?
A person who has discretionary control over the administration and management of the plan's assets is considered a fiduciary, and must act prudently and solely in the interest of the plan participants and beneficiaries. In addition to the general "prudent person" standard of care, there are many specific obligations that fiduciaries must perform.
In addition to the general overarching duty to act as a "prudent person", there are many specific obligations that fiduciaries must perform as part of that obligation, says the Department of Labor, including the following:
- Once established, ensure that there is a written plan describing the structure and operations, a trust fund to hold the plan assets, a recordkeeping system, and documents to provide plan information to employees and the government.
- Follow the plan documents and ERISA rules.
- Diversify plan investments.
- Pay only reasonable plan expenses.
- Document decision making.
- Deposit any employee salary deduction for contribution to the plan in a timely manner.
- If you hire a third party to assist with the administration and management of the plan, be sure to compare different companies and perform any due diligence on the background and capabilities of the providers. Document this process and the ongoing monitoring of their performance.
- Institute a formal review process that evaluates the plan's functioning and the performance of any service providers.
- Avoid any prohibited transactions, such as engaging in self-dealing, transactions with interested parties, conflicts of interest that harm the plan.
- Provide required plan information to participants and beneficiaries, including the Summary Plan Description, Summary of Material Modification, Individual Benefit Statement, Summary Annual Report, Blackout Period Notice
- Submit required annual reports and forms to the proper government agencies in a timely fashion.
- Self-correct certain qualifying violations through the Department of Labor's Voluntary Fiduciary Correction Program.
If the fiduciary breaches any of its duties, he or she can be held personally liable for the plans losses and can be subjected to any equitable relief a court may deem appropriate, including removal. Not all actions taken by an employer-fiduciary will be on behalf of the plan. Some of their decisions will be on behalf of the business, such as the decision to have a plan in the first place. In that case, the employer is acting for the business, and would not be considered to be acting as a fiduciary with regard to that specific decision.
Fiduciaries can also be held liable for acts of their co-fiduciaries under certain circumstances, such as:
- Knowing participation in, or knowing undertaking to conceal an act or omission of another fiduciary, know such act or omission is a breach.
- Failure to comply with the fiduciary's own duties, which then allows another fiduciary to commit a breach.
- Knowledge of another fiduciary's breach, unless he or she makes reasonable efforts under the circumstances to remedy the breach.
There may be multiple individuals involved in managing the plan's assets, including outside third parties, so it will be important to be aware of not only your own actions, but those of others as well.