With the numerous U.S. Department of Labor (DOL) standards that plan fiduciaries must meet, a fiduciary’s job seemingly never ends. Satisfying your fiduciary obligations in administering your retirement plan for the benefit of plan participants, however, need not be unduly onerous if you take an organized, methodical approach to the task. And the more methodical you are, the more evidence you’ll have to show that you’ve met your duties in the event of a challenge.
Fiduciary vs. Settlor Functions
Fiduciary roles and actions are distinct from “settlor” functions. For starters, ERISA defines and regulates fiduciary duties, while state law generally governs settlor functions.
What’s the difference? Settlor functions essentially pertain to plan design, including the decision to start, amend or terminate a plan. A settlor can design a plan to cover a particular set of employees (subject to ERISA rules) without incurring fiduciary responsibility. In contrast, fiduciary functions pertain to substantive actions. For example, when a fiduciary determines that a particular employee is ineligible to participate in the plan, he or she exercises control over a substantive plan action. ERISA considers this a fiduciary duty.
Key Fiduciary Tasks
As a plan fiduciary, how can you be sure to follow proper procedures regarding overall plan administration? Remember, repeated or serious acts of noncompliance (including prohibited transactions) may be a violation of your fiduciary duties.
To start, maintain a comprehensive regulatory filing checklist to ensure that you file or issue to participants all required documents. Additional steps you should take include:
- Reviewing significant regulatory filings (such as Form 5500) before their submission,
- Assessing the performance of third-party administrators, recordkeepers, investment managers and consultants periodically (annually, if possible), and reviewing their agreements,
- Rebidding service provider contracts regularly (consider at least every three years) to ensure that fees and service capabilities are competitive,
- Consulting routinely with ERISA experts as to contemplated fiduciary actions,
- Staying current with legislative, regulatory and legal developments,
- Holding regular (no less frequently than annual) retirement plan committee meetings to review administrative performance and discuss any needed plan improvements, and
- Taking meeting minutes and sharing them with your board of directors.
Be sure to document committee meeting discussions and any decisions made. Perhaps most important, take decisive action to correct any administrative deficiencies.
Plan Investment Fiduciaries
Careful oversight of retirement plan investments — both the selection and suitability of the actual investment choices in participant-directed plans as well as their performance against relevant benchmarks — is a fiduciary function. This area can be rife with problems.
Some investment managers might insist they aren’t fiduciaries. However, their status is based on their degree of influence over investment decisions, and the law doesn’t require absolute control. Under ERISA, a person is a plan fiduciary to the extent that that person renders investment advice for a fee or other compensation, directly or indirectly, with respect to any money or other property of an ERISA plan, or has any authority or responsibility to do so.
In addition, DOL regulations state that a person is a fiduciary rendering investment advice if that person:
- Makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property to an ERISA plan,
- Regularly renders advice to the plan under an agreement that these services serve as the primary basis for investment decisions, or
- Structures his or her advice to address the plan’s particular needs.
Other fiduciary duties should include holding regularly scheduled meetings with investment advisors to review investment market conditions and performance. Document these meetings, including any decisions or requests made at them. Have your plan’s asset investment managers acknowledge their fiduciary status in their service agreements. While this doesn’t diminish your own fiduciary duty, it demonstrates a desire to hold key plan service providers to the highest standard of accountability. And remember, your duty to monitor performance isn’t suspended between meetings; responsibility is ongoing.
Make It Right
Retirement plans have many moving parts. By methodically reviewing your fiduciary duties as they relate to your plan’s operations, you’ll meet your fiduciary obligations. If you have any questions about ERISA’s fiduciary obligations, contact your benefits specialist.