It is common for the trustees and/or plan administrators of employee benefit plans to not fully understand their responsibilities as fiduciaries or the ramifications of not meeting these responsibilities.

A fiduciary is a person or entity that uses discretion in administering and managing an employee benefit plan or controls the plan’s assets.  The standards that a fiduciary of a private company’s employee benefit plan must follow are set forth by the Employee Retirement Income Security Act (ERISA). 

What are the fiduciary responsibilities?

• Act solely in the interest of plan participants and their beneficiaries
• Carry out duties with a cautious outlook
• Follow the terms of the plan document
• Diversify plan investment options
• Only pay reasonable plan expenses

How can you limit the fiduciaries’ liability?

The most important way to limit the fiduciary’s liability is to document decisions that are made regarding the employee benefit plan and why those decisions were made.  If the responsibilities are not met, the fiduciary may be personally liable to restore any losses to the plan, or to restore profits made through improper use of the plan’s assets. There are also two options that help mitigate liability:

1. ERISA Fidelity Bond – This bond restores losses by a plan due to fraudulent acts or dishonesty in handling plan assets.  This may be required for qualified employee benefit plans and is calculated at 10% of assets held in the plan with a maximum of $500,000 (maximum of $1,000,000 for plans that hold stock of the plan sponsor).
2. Fiduciary Insurance – This is an insurance policy that protects the plan fiduciary from breach of required responsibilities under ERISA.

Following are just a few examples of the responsibilities of fiduciaries:

• Employee contributions should be remitted in a timely manner.  This means as soon as it is reasonably possible to segregate the contributions from company assets, but no later than the 15th business day of the month following the payday.
• When hiring a new service provider, it is the fiduciary’s responsibility to consider several options and compare such things as financial condition, experience, professional qualifications, performance, fees and plan management.
• Continuously monitor plan fees and expenses to ensure that they are reasonable.
• Avoid prohibited transactions with related parties.
• Sufficiently inform participants and beneficiaries about the plan and its assets.

If you have questions regarding fiduciary responsibilities or how they affect your plan, plan administrator and its trustees, please contact Karyn Lowrey, Partner, at 678-741-2541 or klowrey@bspj.com.