Retirement Plan Sponsor Fiduciary Responsibility Guidelines For Employee Benefits

As a fiduciary you are required to act in and for  the benefit of the others in certain activities.  As a control person being responsible for a retirement plan you have a fiduciary obligation to the members of the plan. Gone are the days where offering a retirement plan as a benefit  was considered a good thing.  Today, there is a lot of scrutiny coming from the Dept. of Labor taking this fiduciary responsibility to a whole other level.  The Supreme Court case Tibble v. Edison International affirmed that a plan sponsor has an ongoing fiduciary responsibility to put the financial interests of all plan participants above their own interests.  

 

One way a plan sponsor can delegate these responsibilities is through appointing a qualified financial professional under Section 3(21) or Section 3(38) of the Employee Retirement Income Security Act (ERISA). If a plan sponsor does not outsource its fiduciary duty, under the above sections, to monitor the plan’s admin duties and investment options the plan sponsor will remain liable and at risk for any actions and/or lack of actions taken on behalf of the plan.

 

It is important for a plan sponsor to understand the difference between a business decision and a fiduciary decision when dealing with company benefits.  

 

  • The decision to offer a retirement plan is a business decision.  
  • The decisions involving the plan details are fiduciary decisions.

 

A Retirement Plan Fiduciaries Responsibilities

 

As a fiduciary you are in a position similar to that of a guardian.  Participants should and do expect you to always act in their best interests.  Your fiduciary responsibilities include:

 

  • Act in the interest of the plan participants and their beneficiaries.
  • Act with the purpose of being a benefit provider and your primary responsibility is to look out for the workers participating in the plan as well as their beneficiaries.
  • Act to lower costs when possible.
  • Act to carry out duties with care , skill, prudence and diligence of a prudent person familiar with the matters at hand.
  • Follow the plan documents.
  • Offer a diversified mix of plan investments.

 

These responsibilities may be over and above one’s knowledge and expertise and it maybe in everyone’s best interest to utilize experts to assist with these responsibilities. Many a plan sponsor will look to consult  investment and accounting professionals to assist with these responsibilities. Keep in mind that you are always the fiduciary and therefore it is very important to thoroughly vet all experts in depth.

 

Limit Your Fiduciary Liability

Going it alone.

There are options available to you that show you carried out your responsibilities and also limit your fiduciary liability. If you are comfortable and understand the subject manner, this could be as simple as educating yourself in the accounting/investment area and documenting all decision making processes as well as the rationale behind the final decision and when you will revisit the decision.

Hiring a third party to manage the employee benefits plan.

Hiring a retirement plan professional or a financial institution to manage your plan can be a wise decision.  Keep in mind that it is your fiduciary responsibility to document the decision to hire and then to retain a service provider. The methods used to select and monitor the service provider need to be well documented and the monitoring process also needs to be well documented, followed and revisited annually.

Areas to be aware of during the process of hiring a service provider:

  • The firm’s history and experience with handling retirement plans.
  • Proposed investment options and fee structure.
  • Do they provide a summary plan document?
  • Identity, experience and qualifications of the professional handling the account.
  • Any recent litigation or enforcement action taken against the firm.
  • Does the provider use third parties or affiliates? Who and why?
  • Does the firm have fiduciary liability insurance?

Annual monitoring of the service provider:

 

  • Review the provider’s activity level and how it fits into the summary plan document and the expectations that were set in the previous review.
  • Review all fees charged and internal fees being charged.
  • Review investment turnover and the rationale behind the decisions.
  • Review policies and procedures.
  • Review all participant complaints along with any follow up.
  • Review the firm’s fiduciary liability insurance.
  • Review if your plan is in need of a fidelity bond for protection.
  • Review the total amount of plan assets to see if any changes may be in order.
  • Review of form 5500.

As a plan sponsor you can also hire a company such as Aurora Compliance Solutions to assist you with these fiduciary decisions and to help with the annual strategic review of the existing service providers that have been chosen.  

For additional information see the IRS page of FAQ’s: Retirement Plan Investments FAQs.
Written by: Edward E. Romanowsky, Sr. Compliance Consultant of Aurora Compliance Solutions