Becoming a Retirement Plan Committee Member

So, What am I Really Signing-up For?

When a person is appointed or is being sought to be member of a retirement plan committee, the natural question is to understand exactly what the person is committing to. Simply stated, a committee member is a fiduciary, who is expected to always act on behalf of plan participants, using the care of a person familiar with retirement plans and investments. Fiduciaries are expected to exercise good care in the handling and diversifying of the plan’s assets, including the selection and monitoring of the investment options.

Yes, fiduciaries do have the potential for personal liability, both civilly and criminally. This is mitigated by following and documenting a good governance process, as well as by the bonding and liability insurance coverages. There is also a voluntary correction opportunity with the DOL and IRS if something does go awry.

Ultimately, fiduciaries who are being conscientious in the exercise of their duties and are not conflicted or acting in self-beneficial ways should be able to avoid personal liability. Following are more specifics on the role and responsibilities of being a fiduciary.

Who is a Fiduciary

A fiduciary is defined as any individual who:

• Is named in the plan document as a fiduciary or is appointed through a governing body of the organization (typically the retirement plan committee)
• Exercises any discretionary authority or control regarding the management of a retirement plan or its assets; or exercises any control over the management or disposition of a plan’s assets
• Provides investment advice with respect to plan assets for compensation (consultant or adviser falls into this category)
• Has any discretionary authority or responsibility for plan administration

Core Fiduciary Duties Established by ERISA

• The Duty to Act Prudently – Fiduciaries must use the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use in similar circumstances (versus the more common reasonable person standard).
• The Duty to Act with Loyalty and for the Exclusive Benefit of Participants and Beneficiaries – Fiduciaries must act solely in the interest of and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
• The Duty to Diversify Plan Assets – Fiduciaries must diversify plan assets so as to minimize the risk of large losses. Fiduciaries are not, however, measured by the performance of the investment options, but by their actions in oversight of them (e.g. underperforming investments are placed on a watch list and may in time by replaced).
• The Duty to Act in Accordance with the Plan’s Governing Documents – Fiduciaries must act in accordance with the documents governing the plan (to the extent that they are consistent with ERISA).

Managing Fiduciary Responsibilities

Avoiding a breach of ERISA fiduciary duties means following good governance process, including:

• Offer a diverse choice of well-selected investment options
• Prudently monitor the plan’s investment options and to eliminate any investment options that do not satisfy the plan’s investment policy statement
• Deposit participant salary deferrals and loan payments into the plan on time
• Provide proper notification for blackout periods
• Avoid conflicts of interest or potential conflicts of interest
• Not distribute misleading information about benefits or investments
• Not using plan assets for personal or the institution’s benefit
• Following the terms of the plan document

Prohibited Transactions

The institution, its officers and directors, as well as the plan’s fiduciaries and service providers are prohibited from doing the following with the plan:

• Selling, exchanging, or leasing property
• Extending credit (i.e., making loans)
• Providing goods, services, or facilities
• Transferring or using plan assets for their own benefit
• Act on behalf of someone whose interests are adverse to the plan or its participants
• Receive money from anyone dealing with the plan’s assets (other than reasonable compensation)

Personal Consequences of NOT Following Fiduciary Responsibilities

Fiduciaries are held personally liable for not following ERISA fiduciary requirements or for engaging in prohibited transactions. Consequences can include:

• Payment of any losses to the plan
• Surrender of any profits made by the fiduciary
• DOL penalties on amounts recovered for the plan
• Penalties for failure to accurately disclose information to participants
• Penalties for failure to properly report to the government
• Payment of legal fees and excise taxes
• Lawsuits by participants and others
• Criminal penalties of up to $100,000 for individual fiduciaries ($500,000 for corporations) and up to 10 years in prison

The DOL and IRS each have a voluntary fiduciary correction program that allows fiduciaries to voluntarily correct breaches and prohibited transactions, thereby avoiding civil actions and penalties.

Fiduciary Bonding Requirements

ERISA requires that all fiduciaries and every person who handles plan money be bonded.
Fiduciary bonds are intended to cover losses due to fraud, theft, or embezzlement.
The bond must cover 10 percent of the total assets during the preceding plan year. The minimum required bond is $1,000 and the maximum is $500,000, except in certain limited circumstances.

Fiduciary liability insurance is optional and not required by ERISA. It protects a plan and its fiduciaries from losses due to fiduciary breaches of duties. The plan, trustees, and the fiduciaries are typically covered.

While plan assets can be used to pay the premium for covering the plan, the additional premium cost of protecting the fiduciaries must be paid by them or by the plan sponsor.

Let Us Help

The fiduciary duty is serious, but can be managed thoughtfully, especially with the assistance of an experienced consultant or adviser. As a leader in the retirement plan industry, PlanPILOT believes in providing its unbiased, independent, thought leading consulting services to plan fiduciaries. If your firm would like expert fiduciary training for your retirement plan committee, give us a call at (312) 973-4911 or email info@planpilot.com.

Related Posts