New ESOP companies often struggle to understand the roles and fiduciary responsibilities associated with managing the plan. No wonder. The words “administrative,” “administrator,” and “committee” are sprinkled through the lists of responsible parties and sometimes seem interchangeable.
Our infographic illustrates a broad overview of the ESOP plan responsibilities of the various parties. However, it is important to remember that among the ESOP Administrative Committee, Third Party Administrator, and the ESOP Committee, the ultimate fiduciary responsibility rests with the ESOP Administrative Committee.
You can learn more at the National Center For Employee Ownership.
ESOP PLAN RESPONSIBILITIES
There are various administrative activities associated with your ESOP.
What Does The ESOP Administrative Committee Do?
The ESOP Administrative Committee (EAC) must be familiar with the plan’s provisions and is responsible for its operations and management. The EAC will likely hire an outside recordkeeper, a Third Party Administrator (TPA), who does much of the actual required filings and other record keeping and communications work. But the EAC has fiduciary responsibility for the TPA’s work. EAC responsibilities include:
- Understanding and interpreting plan provisions
- Hiring, monitoring, or replacing plan service providers
- Assuring accuracy of the TPA’s work, such as Form 5500 filings
- Overseeing eligibility and benefit claims and appeals
- Assuring preparation and veracity of plan’s annual audit
- Seeing that repurchase liability studies conducted
- Providing required plan documents and notices to participants
- Overseeing participant loans, withdrawals, and distributions
What does the Third Party Administrator (TPA) Do?
The TPA typically handles much of the day-to-day filing and record-keeping, but it is important to remember that the EAC has fiduciary responsibility for the TPA’s work.
What Does An ESOP Committee Do?
In addition to the ESOP Administrative Committee there may also be an ESOP Committee. The ESOP Committee generally has no fiduciary responsibility. The ESOP Committee may be comprised of representative employees throughout the company who:
- Are charged with understanding and communicating the plan to other employees.
- Handle outreach communication functions with the employees.
- Arrange for employee events that highlight employee ownership.