Let’s cut to the chase – a plan fiduciary must always serve in the best interest of plan participants and their beneficiaries, or risk facing some pretty severe fines and penalties. I spend a lot of time with clients discussing this topic. While we could take a much deeper dive, I’ve spared you from the endless facts and curated the essentials. And I really don’t want your eyes to glaze over while you read my first post on this blog. So, here we go:
The Basics – the Employee Retirement Income Security Act (ERISA) defines three primary fiduciary roles as a qualified retirement plan sponsor:
1) Plan Administrator
- Selects and monitors all plan service providers and oversees all operational functions of the plan; usually the individual who signs the Form 5500 acts as the plan administrator.
2) Named Fiduciary
- Develops the plan’s investment policy statement (IPS). We strongly recommend that a qualified retirement plan operate according to an IPS. Also, the named fiduciary must monitor the investment options provided in the plan (usually working with a formal plan investment committee).
3) Plan Trustee
- Distributes plan information and coordinates participant education as required under ERISA.
- Approves loans, hardship withdrawals and distributions.
- Signs plan service agreements and reviews plan expenses.
The Need-to-Knows – more specific areas of concern you need to be aware of:
- Operational/administrative functions of the plan – improperly handling these functions is more likely to cause U.S. Department of Labor (DOL) audits, fines and penalties.
- DOL has a random audit process which means any plan sponsor can be audited without cause.
- DOL requires an ongoing documented fiduciary process.
- All plan fiduciaries are held to a “prudent man” standard under ERISA, which includes being personally liable for the functions and oversight along with compliance knowledge in sponsoring a qualified retirement plan.
Seem like a lot to manage? Lighten your load. You can outsource some of your primary fiduciary roles. There are two main areas available for reducing fiduciary responsibilities:
- Investment-Related: Hire a financial advisor who will act as a:
- named fiduciary in assisting with the investment changes to the fund line-up, and
- will have discretionary authority to make investment changes to the fund line-up.
- Plan Administration-Related: Have an outside organization serve as a named plan administrator that will assume the administrative functions of the plan.
Your financial advisor should be well-versed in the fiduciary roles and concerns of your plan – ask them to make certain your plan is running smoothly from both an administrative and investment perspective.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, Frenkel Benefits – an EPIC Company, and LPL Financial are separate and non-affiliated companies.
This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
Securities regulations prevent Tom from publicly responding to comments on this blog post. Third party posts found on this profile do not reflect the views of LPL Financial and have not been reviewed by LPL Financial as to accuracy or completeness.