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FIDUICARY DUTIES FOR RETIREMENT PLAN SPONSORS QUICK REFERENCE GUIDE
What are the sources of fiduciary duties?
SUMMARY ANSWER • ERISA (for private employers only) • Internal Revenue Code • State Law (for governmental and church employers only) • Common Law and Restatement (Third) of Trusts • Plan and Trust Documents
Who is a fiduciary?
A person who:
OBSERVATIONS While ERISA preempts state law, ERISA is based on common law and courts often reference common law in interpreting the fiduciary standards under ERISA. Governmental and church employers are exempt from ERISA, but are generally subject to fiduciary standards imposed by the Internal Revenue Code and state law. Typical fiduciaries include:
• exercises discretionary authority over the management of a plan,
• Plan Administrator
• exercises authority over the management or disposition of plan assets,
• Trustees
• provides investment advice regarding plan assets for compensation, or
• Investment Managers/Investment Advisors
• has discretionary authority or responsibility in the administration of the plan.
• Board Members • Retirement Committee Members
What is the fiduciary standard?
A fiduciary, in performing his/her duties with respect to a plan, must act: • solely in the interest of plan participants; • for the exclusive purpose of providing plan benefits and defraying reasonable plan expenses;
The standard of care required by ERISA and common law (and frequently state law) is referred to as the “prudent expert” standard. To meet this standard, many plan sponsors secure the advice of an independent investment professional in making investment decisions.
• with the skill and diligence a prudent person acting in the same capacity and familiar with such matters would use; • by diversifying the investments to minimize the risk of large losses; and • in accordance with the plan document.
Can fiduciary duties be delegated?
Yes, most plan documents specifically permit delegation. Delegation is subject to the same standards as other fiduciary acts.
Many employers delegate fiduciary responsibility to a retirement/ investment committee in order to limit and focus fiduciary responsibility. The members and duties of the committee should be set out in writing.
What is a fiduciary’s potential liability?
A fiduciary is personally liable for his/her failure to act in accordance with fiduciary standards. A fiduciary may also be jointly and severally liable for a co-fiduciary’s breach of the co-fiduciary’s failure.
Employers can protect plan fiduciaries from the potential significant costs of defending against a breach of fiduciary duty action through indemnification and/or fiduciary insurance.
Who enforces fiduciary duties?
A participant or fiduciary can sue for breach of fiduciary duties. For ERISA-covered plans, The courts have been the most frequently used mechanism to the Department of Labor can also bring a cause of action, and/or assess a penalty or even enforce fiduciary standards. criminal liability for a breach of fiduciary duty. The Internal Revenue Service can assess a penalty for certain violations.
These materials are intended for general information purposes only and do not constitute legal advice. The materials should not be used or relied upon as a substitute for a review of applicable statutes, regulations, rulings and court decisions. The reader should consult legal counsel to determine how laws apply to specific situations. These materials were prepared in January 2018, and, consequently, will not reflect changes in law subsequent to that date. Attorney Advertising Material | © 2018 Ice Miller LLP.
