When an employer chooses to establish an employee benefits plan, the resulting arrangement is regulated by the Employment Retirement Income Security Act (ERISA). An employer is the plan’s sponsor and employees become plan participants.
In this context, a fiduciary is a person or an entity that does any of the following:
- Has discretion in administering the benefits plan
- Has some control over the plan’s assets
- Provides and charges for financial advice
Many parties may in effect act as benefit plan fiduciaries. These parties may include an internal administrative committee at work, an employer’s human resources department, a company’s board of directors, and parties who monitor other fiduciaries
The following parties are not usually considered fiduciaries of a retirement plan: attorneys, accountants, and actuaries.
What Are the Responsibilities of a Fiduciary?
Fiduciaries act on behalf of employees participating in the retirement plan. They have the following special responsibilities:
- Avoiding conflicts of interests and acting in best interests of benefit plan participants
- Keeping track of the plan’s administration fees
- Providing appropriate diversification for the investments of the benefits plan
- Overseeing the administration of the plan in a prudent, professional manner
- Acting consistently with the plan’s documentation, standards, as well as with EIRSA rules
- Monitoring other fiduciaries’ performances in relation to the plan
What Happens If a Fiduciary Fails to Carry Out Its Responsibilities?
A fiduciary that fails to carry out one or several of its duties may face serious consequences. For example, the fiduciary may be held personally liable for the misconduct and may be required to restore any losses sustained by the benefit plan. The fiduciary may also be sued by the participating employees.
Is It Possible for a Fiduciary to Limit Its Liability?
Faced with potential liabilities, fiduciaries may try to limit them to some extent by:
- Allowing participating employees to become involved in making investments
- Outsourcing to other fiduciaries, such as the plan’s service providers
- Keeping good records of all steps they follow to carry out their duties
- Abstaining from certain prohibited transactions such as self-dealing
- Informing participating employees about their plans
- Submitting appropriate reports to government agencies
When to Seek Legal Help
If you believe that your employer or other fiduciary of your retirement plan has not acted in your best interest, you may need to consult with an experienced employment attorney. Remember that a range of individual can be liable for violations of ERISA, fiduciary duties, and other laws.