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Employers Must Understand Their Fiduciary Obligations Under ERISA

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To meet their responsibilities as retirement plan sponsors, employers need to understand some basic rules. More specifically, the Employee Retirement Income Security Act (ERISA) sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). The Department of Labor’s Employee Benefits Security Administration (EBSA) has a helpful publication entitled “Meeting Your Fiduciary Responsibilities” which provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law. The booklet addresses the scope of ERISA's protections for private-sector retirement plans (public-sector plans and plans sponsored by churches are not covered by ERISA). Although it provides a more simplified explanation of the law and regulations, it is not intended to be a legal interpretation of ERISA, nor is it intended to be a substitute for the advice of a retirement plan professional. Also, the booklet does not cover those provisions of the Federal tax law related to retirement plans. As the booklet emphasizes, each retirement plan has certain key elements. These include:

  • A written plan that describes the benefit structure and guides day-to-day operations;
  • A trust fund to hold the plan's assets;
  • A recordkeeping system to track the flow of monies going to and from the retirement plan; and
  • Documents to provide plan information to employees participating in the plan and to the government.

Employers often hire outside professionals (sometimes called third-party service providers) or, if applicable, use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Several officials may have discretion over the plan. These are the plan’s fiduciaries. Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. If the fiduciary lacks that experience, he or she should hire someone with that professional knowledge to carry out the plan’s investment and other functions. Read More.


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