The fiduciary responsibilities of retirement plan sponsors are defined in The Employee Retirement Income Security Act (ERISA). Although it has been around for more than 40 years, numerous amendments to the act have kept it relevant. These fiduciary standards continue to be some of the highest that can be found in American law.
Take a moment to review this summary, so you can determine whether your organization is meeting the required fiduciary standards.
Duties of an ERISA Fiduciary
ERISA outlines four major duties of fiduciaries of a retirement plan committee:
1. Duty to Loyalty
ERISA fiduciaries must work in the best interest of the members and beneficiaries of the plan with the sole purpose of providing the plan’s benefits.
2. Duty to Act Prudently
Fiduciaries under ERISA must act thoroughly and with prudence. Acting with prudence requires that such fiduciaries carry out tasks in a similar matter of a knowledgeable person in the field. Consulting an expert in the respective field can assist in compliance with this duty.
3. Duty to Diversify Plan Assets
Any fiduciary involved in the management of the plan assets must ensure that there is proper diversification in order to minimize risk. Participants in plans like a 401(k) that allow personal choice must be given adequately diverse options for investment.
4. Duty to Act in Adherence to the Plan Document
The plan document, or the contract between plan sponsors and the participants, serves as an operating manual for a retirement plan committee and must be kept in compliance with ERISA.
All members of the retirement plan committee need not be experts in retirement planning or investment strategies. Instead they are experts in their own field, ready to serve the committee prudently and work towards reaching ERISA’s high standards.
Constructing an Effective Plan
An effective retirement plan does more than just outline the benefit structure. It may also contain day-to-day operations for specific members of the group and outline procedures for regular tasks such as bookkeeping and preparing documentation for plan participants. Assuming the retirement plan is compliant with ERISA, it’s contents must always be followed.
Another important aspect of the plan may be the outsourcing of some operations to service providers. Although the work is outsourced, the entire team, and especially the hiring manager, still maintain some fiduciary responsibilities. A prudent administrator would monitor all providers to ensure they achieve plan standards at a reasonable cost.
It’s important to note that successors to past fiduciaries are not liable for breaches of fiduciary duties made by the predecessor. However, if such successor learns that such a breach has taken place, it is their fiduciary duty to remedy it.
On the other hand, it is completely reasonable to assume that a prudent individual would familiarize themselves with the operations of their predecessor. This means that responsibility could be placed on the replacement in cases where their lack of knowledge rose to the level of negligence.
High Fiduciary Standards Protect Us All
There’s good reason for high fiduciary standards when it comes to the management of a retirement plan. After all, the employees’ futures are literally in your hands.
By constructing an effective plan in accordance with ERISA, following the four fiduciary duties, and ensuring new team members validate compliance when entering a new fiduciary role, your organization will be on the right track to maintaining the trust of retirement plan participants.