Fiduciaries play a significant and necessary role in retirement plans. Participants rely on the plan’s fiduciaries fulfilling their responsibilities so they can be provided the best opportunity to succeed during retirement. Fiduciaries can single-handedly affect the lives and futures of hundreds or thousands of participants within a given plan. You might ask, “Who is a fiduciary, what do they do, what are they supposed to do, and what do I need to do?”
The Employee Retirement Income Security Act of 1974 (ERISA) Section 3 categorizes a fiduciary as a person who, with respect to employee pension plans, has or exercises any discretionary authority or control over the administration or management of the plan. There are many different individuals and service providers involved in the administration and management of an employee benefit plan, so it is vital to understand who performs what role. Most plan documents define the plan fiduciary. In most instances, the Plan Sponsor or a related member of the organization will be defined as the fiduciary, but an advisor or other parties could take on that designation as well. It is important to understand that there can be more than one fiduciary in a plan. Fiduciaries can be “named” (defined in the plan documents) or “unnamed” (not identified in the plan documents but meet the definition based on their role in the plan). Ask yourself, “Does this person exercise discretionary control over the plan?”. If the answer is yes, they are a fiduciary.
The basic responsibilities of fiduciaries include, but are not limited to the following:
- Act in the sole interest of the plan participants and the plan beneficiaries, and acting exclusively for the purpose of providing benefits to individuals participating in the Plan and their beneficiaries or paying plan expenses.
- Act with care, skill, prudence, and diligence under the circumstances that a prudent person who is familiar and acting in a similar capacity with such matters would conduct themselves.
- Duty to diversify plan assets to minimize the risk of large losses.
- Duty to operate the plan in accordance with the plan documents.
Some of the current hot topics falling under fiduciary responsibilities include:
- Excessive fees
- Untimely remittances of contributions
- Failure to operate within the plan provisions
- Imprudent investment options
- Improper annual filings and compliance matters
Of these hot topics, the most common issues we run into in plan audits relate to untimely remittances of contributions and failure to operate within the plan provisions. Many of the causes of these issues stem from overreliance on third parties hired to process plan transactions. In future insights, we will explore some of the areas where overreliance is prevalent.
The above basic responsibilities of a fiduciary must be followed, or penalties and lawsuits could potentially occur. Both the Department of Labor (DOL) and the Internal Revenue Service (IRS) have correction programs if issues arise. We can help guide you through those programs if you are faced with compliance failures. Please do not hesitate to reach out to our Employee Benefit Plan Team for guidance.