A Quick Guide for Accidental Plan Fiduciaries
Part 1: Are You An Accidental Plan Fiduciary?
A Plan Fiduciary is someone who exercises discretionary control over the operation of a Retirement Plan or is responsible for the Assets of a Plan. Fiduciary status is based on function, not just on title. Named Plan Fiduciaries are the Plan Sponsor, the Plan Administrator, and the Plan Trustee.
The Plan Sponsor (usually the Employer who sponsors the plan) is the ultimate Plan Fiduciary. The Plan Sponsor, who agreed to sponsor the plan, retains the right and responsibility to designate, hire, fire, and supervise all other fiduciaries, including the Plan Administrator and the Plan Trustee. The Plan Sponsor ultimately determines the plan features, which employees are covered by the plan, the benefits of the Plan, and is responsible for the funding of those benefits.
If the Plan Sponsor is simply designated as the Employer (ABC Company), the governing body of the Employer is the Plan Sponsor. This may be a Board of Directors, the Partners, or the Sole Proprietor.
The Plan Administrator is responsible for the operation of the plan, notifying participants that they are eligible, and dealing with the funding of the plan. The Plan Sponsor is also responsible for choosing and providing accurate information to any other providers who help in the operation of the plan. These can be third party administrators (TPAs), Record-keepers, Payroll Services, Trustees, Investment Advisors, and more. If the Plan Sponsor does not designate a Plan Administrator, he or she is also the Plan Administrator. The Plan Administrator may be a designated person or a Committee.
A Trustee is a Named Fiduciary. The Trustee is either a named individual, group of individuals, or a Financial Institution. The Trustee is responsible for the safety and proper investment of the plan assets. Often the Trustee will seek investment advice in regard to the plan assets and may even designate the responsibility for the choice and monitoring of investments to a designated investment advisor.
The Investment Advisor may take various levels of responsibility as clarified in ERISA §3(21) and §3(38). Regardless of which ERISA code is being claimed, it is important for the Trustee to have an understanding of what this designated advisor is promising to do, what they will charge for their services, and who pays for these services.
One Fiduciary may appoint another. For example, a Trustee might hire an investment advisor to make investment decisions. However, the act of hiring does not relieve the first fiduciary of all responsibility. They are still obligated to supervise, approve, or disapprove of the performance of the other Fiduciary.
Maybe you are not a fiduciary? If you are simply carrying out discrete tasks under someone else’s supervision, such as reporting census information to the Plan Administrator, as part of your function in the payroll department, you are not a fiduciary. You are merely performing ministerial tasks. It is still important to exercise care and diligence in your tasks. You can accidentally make yourself a fiduciary by deliberately falsifying or withholding information that can affect the operation of the plan.
Next Installment: What to do if you find out you are a Plan Fiduciary.
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Part 2: So, You’re An Accidental Plan Fiduciary! Now What?
Find out what your duties are.
If you are not able to carry out those duties,
- get training,
- appoint someone else who can, or
- decide you won’t be a Fiduciary.
Follow the Plan Document.
- Read the Summary Plan Description.
- Read parts of the plan document that cover your duties.
- Act solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them.
- Carry out your duties with skill, prudence, and diligence.
- Avoid conflicts of interest.
If you are responsible for any of the plan assets or other financial aspects of the plan,
- Make sure plan assets do not get diverted.
- Make sure Payroll deferrals make it from the employer to the trust.
- Make sure employer contributions are deposited to the Trust.
- Pay only reasonable expenses of administering the plan and investing its assets.
- Make sure assets are invested with reasonable safety and diversification.
- If you do not know how to do this, hire someone who does.
Document your actions and meetings.
- Who was at the meeting?
- When was the meeting?
- Where was the meeting?
- What was decided?
- What are the action items coming from the meeting, and who is assigned to implement them?
- Is there a time frame?
- Why did you decide to take or not take this action?
Process is important.
- If the decision is not perfect, is it at least well thought out?
- Was anyone consulted?
- What information was used to make the decision?
- Will there be a future meeting?
All of this may sound like a dull school board meeting, but when it comes to a retirement plan, drama is not a plus.
Even if you are not having meetings and are deciding everything on your own, follow these rules. Documentation will help you stay on track and will help you explain yourself, if someone takes exception to any of your decisions.
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Part 3: 10-Point Checklist For Plan Fiduciaries
This handy checklist of what you need to know can help ensure that you are meeting all of your responsibilities and accomplishing the plan's objectives.
1. Fiduciary Roles and Responsibilities
2. Plan Documents
3. Fidelity Bond, Fiduciary Liability Insurance
4. Service Provider Contracts
5. Government Reporting
6. Employee Communication Materials
7. Administrative Policies and Procedures
8. Annual Compliance Tests
9. Meeting Minutes
10. Annual Review of Materials
Although Federal administrations may have different emphasis on enforcement, the general rules of what you need to know to be a Fiduciary remains constant.
Contact us to learn more about Fiduciaries as well as other Retirement Plan questions you might have.
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