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 plans 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.
- Frequency of monitoring and reporting performance.
- Bonding and professional liability insurance coverage.
- The scope of organizational resources.
Businesses have the responsibility to review a fiduciarys 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 plans best interest or failing to take reasonable steps to correct another fiduciarys 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, CFPä at (412) 635-9210 or mailto:email@example.com
* This article was published in the Small Business News publication in January, 2003.