Fiduciaries of qualified retirement plans are held to the highest of federal standards. Fiduciary violations under the Employee Retirement Income Security Act (ERISA) of 1974 can expose you and your employer to risk and litigation. In some circumstances, fiduciaries can be held personally responsible for losses and restitution.
Not all fiduciaries are identified by title. Furthermore, some individuals may play a fiduciary role in some of their functions but not other functions. So how might you know if your position places you in a fiduciary role, or if your actions are subject to ERISA’s fiduciary standards?
There are innumerable journal articles, books and court cases that parse the question of who is held accountable for fiduciary conduct regarding benefit plans under ERISA. Here are some commonly held distinctions between a plan fiduciary and a non-fiduciary.
Functions Tell More than Titles
Fiduciary status is based on functions performed, not just titles. Under ERISA, the litmus test is whether you exercise discretionary authority in administering and managing a plan or in controlling the plan’s assets. You will be viewed as a fiduciary to the extent of your authority, control or discretion.
Fiduciaries Named in the Plan Document
Written benefit plans must name at least one official Fiduciary, by name or by office, or through a process described in the plan, as having control over the operation of the plan. The named Fiduciary can include one or more individuals; as well as entities such as an administrative committee or the company’s board of directors. Plan fiduciaries may typically include:
- The Trustee
- Persons exercising discretion in the administration of the plan
- Members of a plan’s administrative committee (if the committee exists)
- Persons who select committee officials
- Investment advisors
Professionals and Fiduciary Responsibility
Professionals providing services are generally not considered fiduciaries when they are acting solely in their professional capacities. Professionals who commonly provide services include:
However, to the degree that a professional exercises authority or control over a plan, he or she can be liable for fiduciary actions. For example, a professional who is given compensation to provide investment advice for the plan trustees and participants would be performing a fiduciary function.
Business Decisions vs. Fiduciary Decisions
Business decisions are not governed by ERISA. Since employers are not required to provide retirement plans for employees, ERISA views the decision to establish a qualified plan as a business decision because the employer is acting on behalf of the business.
Other business decisions can include the determination of:
- The contribution formula
- Certain features to be included, such as loans or hardship distributions
- Whether or not to adopt a discretionary plan amendment
- Whether or not to terminate a plan
However, once employers (or those hired by them) act to implement a qualified plan, they are acting on behalf of the plan, and their decisions in carrying out the plan are considered fiduciary decisions, subject to ERISA regulations governing fiduciary responsibilities. They have a fiduciary duty to ensure the plan is operated in and maintains proper compliance.
Given the nuances of fiduciary codes, the Department of Labor, which enforces ERISA laws, has demonstrated over the years that final determination of fiduciary liability and responsibility rests on the intersection of the specific circumstances of each situation and the prevailing regulations. If you have a specific question regarding fiduciary roles, naming a fiduciary, or the delegation of fiduciary duties, it is best to seek professional expertise.
If you feel you are facing a change in responsibilities or have a question about your fiduciary roles and risks, feel free to contact us.