Do you ever long for the carefree bliss of your childhood? No real responsibility. No bills to pay. No one depending on your performance. While it’s nice to daydream, it’s never going to happen, especially considering the fiduciary responsibility you have as a plan sponsor.
You have a lot of weight on your shoulders as a plan sponsor. After all, if something goes wrong, you could be held personally liable. Not only are you liable for losses resulting from a breach of your fiduciary responsibility, but you’re also liable if you have knowledge of another fiduciary’s breach and either conceal it or fail to make reasonable efforts to remedy it. And, to top it off, no actual harm is needed for you to be found liable.
Deciding who can be held liable is confusing considering the various roles and fiduciary definitions under ERISA. Let’s clear things up by taking a close look at what ERISA says about fiduciary responsibility.
Who is a Fiduciary?
Your retirement plan has at least one fiduciary, and this is generally the person or entity named as the plan administrator in your plan document. This individual or entity, known as a 3(16) fiduciary, is responsible for running the day-to-day operations of the plan including things like the selection, evaluation and monitoring of service providers, investment offerings and other similar functions.
Hiring an outside provider doesn’t relinquish the fiduciary’s responsibility either. A 3(16) fiduciary can never completely eliminate his or her fiduciary responsibilities.
While the named fiduciary is a visible role, it’s not the only way to determine actual fiduciaries. The fiduciary role is defined by what an individual does, not simply job title or description.
What’s the Fiduciary’s Role?
Think of your 3(16) fiduciary as “the coach” for the retirement plan. The coach…
… drafts the players (a.k.a. service providers) based on their ability to deliver and their costs.
… writes the playbook, which is the plan document and any other governing documents.
… monitors and evaluates the performance of the team to determine what changes need to be made.
If a sports coach didn’t look at these areas, how would the team’s season turn out? Your retirement plan is no different. Your fiduciary needs to take responsibility for drafting, writing and monitoring.
What Does a Fiduciary Do?
As a fiduciary of your company’s retirement plan, here’s what you’re charged with:
- Acting solely in the interest of plan participants and beneficiaries. This is with the exclusive purpose of providing benefits to them. While your plan was established for sound business purposes, once an individual becomes a plan fiduciary, plan decisions need to be participant-focused.
- Carrying out duties prudently. No one expects a fiduciary to possess all the expertise needed for plan oversight. However, it’s expected that you engage proper expertise to assist when needed. Focus is placed on the process for making decisions, not necessarily the outcome. So be sure to document decisions, along with the basis for those decisions.
- Following the plan document. This may sound easy, but it’s not so straightforward. Make sure the plan document contains all intended plan provisions, and then double-check to ensure the plan is actually operating that way.
- Diversifying plan investments. The key is minimizing the risk of large investment losses to the plan. In addition, participant-directed plans must allow a range of investment types from which participants can make selections.
- Paying only reasonable plan expenses. Reasonable does not mean the lowest; fees need to be in line with the service being provided. You have to properly evaluate fees to make this determination.
Know Your Fiduciary Responsibilities
Yes, you have a lot on your plate. Long gone are the days of carefree childhood living. But don’t add to your stress. An unintentional breach of fiduciary responsibility will only make your job more difficult. Start by understanding your fiduciary responsibilities and making certain you have the proper processes and tools in place. And don’t be afraid to engage expertise when you need it.
Fiduciary and Retirement Plan Sponsor Help
If you need assistance in understanding what your fiduciary responsibilities are and what they mean to your role as plan sponsor, contact Rea & Associates. Our team of Ohio pension audit professionals can help you make sense of it all.
Author: Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)
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