Fiduciary Responsibility for Employee Benefit Plans: What It MeansFebruary 04, 2015
Employee benefit plans are often critical to attracting and retaining key talent, but the implications for employers go far beyond simple HR matters.
Employee benefit plans are often critical to attracting and retaining key talent, but the implications for employers go far beyond simple HR matters. Persons and entities that administer and manage benefit plans — or control a plan’s assets — are considered “fiduciaries” and assume responsibilities that raise the potential of significant personal liability.
A plan’s fiduciaries generally include the trustee, investment advisers, all members of the plan’s administrative committee and those who select the committee. Fiduciary status turns on whether an entity or individual exercises discretion or control over the plan, not just a title.
Fiduciaries are subject to specific standards of conduct. They generally must:
- Act solely in the interest of plan participants and their beneficiaries and for the exclusive purpose of providing them benefits (also known as the duty of loyalty),
- Carry out their duties prudently,
- Follow the plan documents (unless inconsistent with ERISA),
- Diversify plan investments, and
- Pay only reasonable plan expenses.
With these responsibilities comes the possibility of liability when a fiduciary doesn’t live up to the standards of conduct.
Fiduciaries that fail to follow the basic standards of conduct for fiduciaries can be found personally liable for restoring any losses suffered by the plan or any profits made through improper use of the plan’s assets resulting from their actions. A fiduciary could also be liable for the actions of their co-fiduciaries, including the trustee, investment advisers and all others who exercise discretion in the administration of the plan.
Fiduciaries can, however, take some steps to limit their liability. For example, they can demonstrate that they’ve carried out their responsibilities properly by documenting the processes they followed. Some plans can be set up to give participants control over their investments and limit a fiduciary’s liability for participants’ investment decisions.
And a fiduciary can hire a third party to handle fiduciary functions, with the third party assuming liability for those functions. The fiduciary remains liable for selection and monitoring of the third party, though.
To learn more about fiduciary responsibilities and limiting personal liability, contact us.