When it comes to qualified retirement plans, there are
three kinds of people: people who are fiduciaries and know
it, people who aren't fiduciaries and know it, and
people who are fiduciaries and don't know it.
Now, for the most part, those in the first category are
in pretty good shape. Oh, there are a plethora of ways in
which a fiduciary can fail to uphold his or her
responsibilities under the Employee Retirement Income
Security Act (ERISA) but, in my experience, if you're
at least trying to do the right things, and taking the time
to document that effort, you're in good shape. Still, even
those who are trying to do the right things—and who embrace
that role—don't always fully appreciate the
implications.
The second category mostly tends to include those folks
or firms that provide services to the retirement plan
fiduciaries. Most enjoy that status because they don't
technically have any authority to do anything on their own;
they just help those who do know what to do. Of course,
there are some who think they are in the second category,
who are actually in the third category.
As for that third category—well, here are seven things
that, IMHO, every plan sponsor should know about being a
fiduciary:
If you're a plan sponsor, you're a fiduciary.
Fiduciary status is based on your responsibilities
with the plan, not your title. If you have discretion in
administering and managing the plan, or if you control the
plan's assets (such as choosing the investment options or
choosing the firm that chooses those options), you are a
fiduciary to the extent of that discretion or control. If
you're not sure—and are worried that you aren't
sure—there's a good chance you are.
For the very most part, you can't offload or outsource
your fiduciary responsibility.
ERISA has a couple of very specific exceptions—more
precisely, ways in which you can limit, but not eliminate,
your fiduciary obligations. One exception has to do with
the specific decisions made by a qualified investment
manager—and, regardless, you remain responsible for the
prudent selection and monitoring of that investment
manager's activities on behalf of the plan. The second
exception has to do with specific investment decisions made
by properly informed and empowered individual participants
in accordance with ERISA's 404(c). Here also, even if your
plan meets the 404(c) criteria (and it is by no means
certain it will), you remain responsible for the prudent
selection and monitoring of the options on the investment
menu from which they are selecting. Outside of these two
exceptions, you're essentially responsible for the quality
of the investments of the plan—including those that
participants make.
If you are able to hire a fiduciary, you're (probably) a
fiduciary.
The power to put others in a position of power
regarding plan assets is as critical as the ability to make
decisions regarding those investments directly.
Hiring a co-fiduciary doesn't keep you from being a
fiduciary.
Moreover, all fiduciaries have potential liability
for the actions of their co-fiduciaries. If a fiduciary
knowingly participates in another fiduciary's breach of
responsibility, conceals that breach, or does not take
steps to correct it, both are liable.
You have personal liability as an ERISA fiduciary.
That's right, the legal liability is personal (you
can, however, buy insurance to protect against that
personal liability—but that's not the fiduciary liability
insurance you may have in place already). You may be
required to restore any losses to the plan or to restore
any profits gained through improper use of plan assets.
Once you're a fiduciary, you can't just quit and walk
away.
The Department of Labor cautions that
"fiduciaries who no longer want to serve in that role
cannot simply walk away from their responsibilities, even
if the plan has other fiduciaries. They need to follow plan
procedures and make sure that another fiduciary is carrying
out the responsibilities left behind."
You're expected to be an expert—or to hire help that
is.
ERISA's Prudent Man rule is a standard of care and,
when fiduciaries act for the exclusive purpose of providing
benefits, they must act at the level of a hypothetical
knowledgeable person and must reach informed and reasoned
decisions consistent with that standard. None other than
the Department of Labor itself notes that "[l]acking
that expertise, a fiduciary will want to hire someone with
that professional knowledge to carry out the investment and
other functions."
As a plan fiduciary, it's never too late to start doing
the right things the right way, but doing the right things
means understanding what is expected of you—and
appreciating the implications.
For more information, see "Fiduciary
Fundamentals" at
www.plansponsor.com/magazine_type1/?RECORD_ID=45111