Key Elements of Fiduciary Duty for Plan Sponsors
by Daniel G. Dolan
This definition typically includes plan trustees, administrators and others that may have a decision making role regarding plan assets. The Department of Labor mandates that a fiduciary must give appropriate consideration to many relevant factors regarding the retirement plan. Some of these factors are investment plan, diversification, liquidity, risk, performance.
There are several courses of action that plan sponsors can take to reduce or eliminate their fiduciary liability. One of the most important initial steps is complying with Section 404(C) of ERISA. The Employee Retirement Income Security Act of 1974 (ERISA) protects the interest of participants and their beneficiaries by requiring disclosure of financial andother relevant information concerning a retirement program. 404(C) specifically provides that a plan fiduciary will not be liable for investment loss where the plan allows the participants and beneficiaries to exercise control over the assets in their accounts. The primary tenets of 404(C) require that participants and beneficiaries be given an opportunity to exercise control over assets in the individual’s account, an option to choose from a broad range of investment alternatives and that the employer advises participants that they intend to comply with section 404(C) of ERISA.
A second step to reduce liability is the establishment of an investment policy statement. It is advisable for plan fiduciaries to adopt and adhere to an investment policy statement. ERISA does not require that this policy be in writing, but it is prudent to have a written document available. Outlining the systematic and disciplined guidelines the fiduciaries employ inselecting and monitoring plan investments is recom-mended. The investment policy statement is comprised of policy objectives, responsible parties, the investment guidelines and guidelines for reporting and monitoring. Attached may also be any pertinent information used to facilitate the investment, reporting and monitoring guidelines. The investment policy statement should be reviewed periodically and plan sponsors should keep minutes from these meetings to substantiate their frequency and content.
Another reduction of fiduciary liability can be achieved by the purchase of a fidelity bond. ERISA requires that every fiduciary and every person who handles funds or property of the plan be bonded. A fidelity bond purchased by the employer or plan sponsor protects the plan against the misappropriation of funds by individuals handling the plan assets. The face amount of the bond must be at least ten percent of the value ofthe total plan assets, not to exceed $500,000. This requirement is not applicable to one person plans.These are defined as a plan providing benefits to owners and owner’s spouses only. The cost of the bond is typically nominal and can be obtained through the organization’s existing insurance relationship.
A fourth strategy to further manage fiduciary liability can be implemented by entering into an agree-ment to have another party assist the plan fiduciaries in monitoring their investment platform. Most small and many mid-size plan sponsors need assistance in this crucial area. There are a couple of strat-egies one can utilize when approaching this issue. The first is to have a co-fiduciary. Under this arrange-ment, the provider agrees to serve as the investment fiduciary in regard to monitoring plan investment alternatives. Usually this is an insurance company monitoring the sub advisors in their group variable annuity. The co-fiduciary agrees to compensate theplan sponsor for any damages incurred as a result of any breach of fiduciary duties predicated on the quality of the underlying investments. A second option is to enter into any agreement with an RIA(Registered Investment Advisor). The RIA selects theasset classes for the employees and provides severalfund options in each category. The RIA monitors theinvestments for an interval (quarterly, semiannually,etc.) and changes the funds when appropriate. The RIA becomes a fiduciary by the mere fact that afee is charged for their investment advice.
There are many pitfalls in today’s retirement plan environment that await plan sponsors that are not properly educated regarding their duty as a fiduciary. With current congressional legislation focusing on disclosure of costs and transparency of fees associated with qualified plans, the job of the plan sponsor/fiduciary will become increasingly more important due to the new availability of information. Plan sponsors should seek advice from an employee benefits attorney to ensure that they are currently up to speed with their fiduciary responsibility. A qualified plan specialist can work in conjunction withyour selected legal counsel to minimize fiduciary risk in your qualified plan now and into the
future. 
Daniel G. Dolan, CLU,ChFC, LUTCF is with Tax Favored Benefits, Inc.
P | 913.648.5526
E | Dan@TaxFavoredBenefits.com