Officers, directors and business owners can have personal liability if the company’s retirement plans aren’t properly managed. Do you know who your plan fiduciaries are? Do you know if you’re one of them?
Speaking of benefits, this is Jim Paul. Today we’re going to be talking to C-Suite executives, directors, and business owners about fiduciary risk.
Even if you don’t have day-to-day responsibility for managing your company’s 401(k) or other retirement plans, there are certain things you should know to effectively manage retirement plan risks. Officers, directors, and business owners can have personal liability if retirement plans are not properly managed. The good news is that retirement plan risk can be managed and mitigated. This podcast series focuses on high-level issues that business leaders and owners should understand to properly manage risk.
The Employee Retirement Income Security Act, or “ERISA,” governs retirement plans. ERISA requires that each plan designate one or more individuals to serve as plan fiduciaries. Among other things, plan fiduciaries are responsible for:
- Plan administration;
- Safekeeping plan assets;
- Selecting and monitoring plan investment options; and,
- Selecting and monitoring plan service providers.
Plan fiduciaries have the responsibility and authority to make decisions and must act for the benefit of plan participants with the care, skill, and diligence of a prudent expert — a very high standard of care.
ERISA requires that each retirement plan designate a plan administrator and a named fiduciary. Most plan documents designate the employer as the fiduciary and, if that is the case for your plan, the board of directors, partners, or other owners will be individually responsible as fiduciaries.
ERISA permits an employer to designate a committee or other individuals to act as plan fiduciaries and to delegate fiduciary duties. For example, many employers appoint an investment committee to be responsible for selecting and monitoring plan investment options. The investment committee may include board members, the CFO, and others. An investment committee may retain an advisor to assist with investment selection and monitoring.
The important point here is to select the plan fiduciaries deliberately and to delegate fiduciary and decision-making authority with thoughtful deliberation. Don’t become a fiduciary by accident. The board, partners, or other owners may retain some oversight responsibility, but fiduciary decision-making for retirement plans should be delegated to those with appropriate knowledge and experience who will focus on these issues.
It is worth noting that when the Department of Labor investigates a retirement plan, the first question they always ask is “Who are the plan fiduciaries?” If you ever find yourself facing a DOL investigator, you want to know the answer to that question. If you are not certain who the fiduciaries are for your plan, or if you have questions about allocating and delegating fiduciary responsibility to manage potential risks, please contact us.
If you need specific guidance on this topic, let’s start a conversation.
This podcast is for general informational purposes only. It does not create an attorney-client relationship between Employee Benefits Law Group and the listener or reader and does not constitute legal advice for a specific situation.
This is Jim Paul.