While you offer your employees defined contribution, defined benefit, health and welfare, or profit sharing plans, it is important to know that offering these plans also comes with responsibilities and risks for the sponsoring company and the trustees of the plans. The Employee Retirement Income Security Act (ERISA) governs the rules to be followed for fiduciaries of the plan. A fiduciary is someone who performs a role for the plan where they are making decisions in administering and managing the plan or controlling the plan’s assets or implementing decisions. Fiduciaries could include the chief financial officer or controller, trustees, investment committees, or investment advisors.
All who work with any aspect of their company’s defined contribution, defined benefit, health and welfare, or profit sharing plans should be aware of the range of fiduciary responsibilities including:
- Ensuring employee contributions are deposited as soon as practical
- Acting solely in the interest of the plan participants
- Avoiding conflicts of interest
- Following the terms of the plan document
- Offering diverse investments
- Paying only reasonable plan expenses
- Hiring suitable service providers
- Documenting decisions and comparisons done for the plan (including completing minutes from meetings)
- Having the 5500 Form Filed with the Department of Labor by the deadline and with the appropriate type of filing
Courts may take appropriate actions against individuals who breach the duties under ERISA, including removing them from the plan or holding them personally liable to restore losses or pay penalties.
To limit liability, fiduciaries should:
- Document the procedures followed to discharge fiduciary responsibilities
- Offer a broad range of investment alternatives
- Monitor investment performance against benchmarks and exchange out poor performers
- Evaluate the level of fees paid within investment offerings
- Review the performance of service providers
- Provide participants with sufficient information to make informed investment decisions
- Ensure the fidelity bond required by ERISA offers proper coverage
- Consider hiring an outside fiduciary firm to outsource several of these duties
- Be aware of all whom serve as fiduciaries to the plan
- Correct any other fiduciary’s breach of responsibility
