Bad securities markets leave retirement plan participants
questioning the people in charge.
Lawsuits are often filed and employers who are fiduciaries are the
targets.
Fiduciaries come in two forms: the person who controls the
management of a plan or its assets, or a firm who is paid to give investment
advice. Individuals can be fiduciaries
for limited purposes and perform other, non-fiduciary duties regarding the same
retirement plan. Individuals who simply
follow directions or guidelines are not considered a fiduciary.
Fiduciaries must be named in the plan’s documents so that
plan participants or other interested parties (the IRS) know who is
responsible. Employers can designate
themselves as a fiduciary, but plan documents should specify a standing
committee or the job title of a person who will carry out the fiduciary
responsibilities.
Generally, anyone who provides investment advice (Registered
Investment Advisors) to employers or plan participants or select securities for
a fee is considered a fiduciary.
Employers who sponsor plans are fiduciaries because they can fire
service providers and select investment managers and/or consultants. Administrators who make plan management
decisions are also fiduciaries.
When hiring a fiduciary, consider the following:
- Qualifications
with respect to education, credentials, licensing and registrations,
relevant experience.
- Compensation
issues.
- Services.
- Frequency
of monitoring and reporting performance.
- Bonding
and professional liability insurance coverage.
- The
scope of organizational resources.
Businesses have the responsibility to review a fiduciary’s
performance at least annually.
Fiduciary duties include:
- Acting
in the exclusive interest of plan participants and control expenses.
- Making
decisions that a prudent person familiar with retirement plans would.
- Diversifying
investments.
- Preventing
co-fiduciaries from committing breaches and rectify the actions of others.
- Holding
plan assets within U.S. jurisdiction.
- Bonding
in the amount of 10 percent of funds handled up to a $500,000 maximum.
- Acting
according to the terms of plan documents unless the documents are in
conflict with ERISA.
- Avoiding
prohibited transactions.
ERISA permits civil actions to be brought by a participant,
beneficiary or other fiduciary against a fiduciary for breach of duty. Fiduciaries are personally liable for any
losses to the plan resulting from breach of duty – even if they are unaware of
a violation. Fiduciaries can also be
held liable for failing to act in the plan’s best interest or failing to take
reasonable steps to correct another fiduciary’s breach of duty.
Fiduciaries have a great deal of responsibilities and
penalties are severe. Employers must
act responsibly when dealing with any retirement plan.
For further information, contact Louis P. Stanasolovich, CFP™ at (412) 635-9210 or mailto:legend@legend-financial.com
* This article was published in the
Small Business News publication in January, 2003.