Risks and responsibilities plan sponsors need to know
Any company that sponsors a retirement plan faces fiduciary obligations mandated by the Employee Retirement Income Security Act of 1974 (ERISA). To avoid potentially substantial legal and regulatory costs and reputational risk—as well as possible plan disqualification and harm to plan participants—plan sponsors and their fiduciaries need to be diligent in understanding and fulfilling those obligations.
Federal laws require retirement plans subject to ERISA to have a fiduciary because someone must be in charge of the plan on an ongoing basis.
ERISA defines fiduciary duties. Some include:
- Appointing other plan fiduciaries or service providers
- Selecting plan investments
- Denying or approving claims
- Interpreting the plan
According to ERISA rules, the written terms for each covered plan should name and describe the duties of at least one named fiduciary. Many prototype plans include the employer as a named fiduciary. Within the plan, the named fiduciary may have the ability to appoint a plan administrator, who has the fiduciary duties for much of the plan’s day-to-day administration. In many plans, the plan administrator remains the employer.
For many plans, fiduciary responsibility is commonly delegated to:
- A retirement committee appointed to absorb most of the named fiduciary duties of the plan
- Various individuals appointed to be plan administrators
- Outside trustees who hold the assets and assist with aspects of plan administration
- Investment advisors retained to manage the investment selection and monitoring of plan assets
You might be thinking: If I'm an employer, can I simply delegate all the fiduciary duties and sit back?
Unfortunately, no. Directors remain fiduciaries to the extent they have responsibility for any fiduciary functions. If the directors have the authority to select other plan fiduciaries, this is a fiduciary act. Does this mean the full weight of the plan's fiduciary duties fall on the shoulders of any director who makes these decisions? No, but his or her fiduciary responsibilities and liability remain constant for certain acts. A director in this case would be liable for:
- The selection and retention of other fiduciaries
- Any other obligations specified in the plan document
- Breaches of any other plan fiduciaries (that is, "co-fiduciaries") to the extent the director knew or should have known about the breach and did not act to correct the problem
Continuing education is the key to understanding the complex maze of ERISA fiduciary duties.
Fiduciary continuing education cannot be solved by a one-size-fits-all program. Look for a solution designed to fit the needs of your directors. Some of the features of training could include:
- Dialogue concerning key fiduciary risks for your organization's ERISA plans, non-profit governance or both
- Practical identification of fiduciary risks and methods to mitigate them
- Discussion of proper internal controls for fiduciary processes
- Convenient scheduling to meet the needs of your board
- Expertise from attorneys well versed in fiduciary management
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Branch Banking and Trust Company, Member FDIC.