Plan administrators and sponsors are fiduciaries who are charged with the highest level of responsibility, fair dealing and good faith recognized under the law. As a fiduciary, you have a legal duty to provide the utmost care and servicing on behalf of the beneficiaries in your plan. Because of the critically important retirement assets you oversee as a fiduciary, the federal government demands the best out of its plan administrators.
A To-Do List for Plan Administrators and Sponsors
Under federal fiduciary standards, here’s what is expected of you:
- Exercise prudence and discipline in your decision-making process. This applies to the selection of managers, advisers and the administration of plans.
- Refrain from self-dealing of any kind.
- Act solely in the best interests of the beneficiaries in your plan. Your exclusive objective must be to provide benefits for employees.
- Never accept kickbacks or bribes from fund salespeople.
- Keep plan assets diversified among many different asset classes.
- Keep plan expenses (expense ratios, mortality and administration charges) at a reasonable level.
You’re not necessarily expected to be a subject matter expert in every pension, investment or health insurance issue that comes up. You’re permitted and, in fact, encouraged, to hire outside professional advisers in your role as a fiduciary. However, you must still provide oversight of the decision-making and asset allocation process.
More Tips for Plan Administration Professionals
Here are some ways plan administrators can demonstrate that they’re acting with the highest level of responsibility, fair dealing and good faith:
- Communicate plan features, procedures and changes to beneficiaries on approved documents.
- Set up an appeals and grievance procedure and ensure it’s publicized to plan members. It should be easy to initiate a complaint.
- Contact your employment benefits consultant or benefits professional to conduct a periodic compliance review of your plan, from top to bottom.
- Focus on processes. Results will take care of themselves.
- Create a written investment policy statement and stick to it.
- Make all investment decisions in accordance with your investment policy statement and your other plan documents.
- Develop your written procedures and criteria for selecting plan vendors. Make your criteria as objective as possible.
- Request that the company purchase directors and officers insurance to help shield you and other members of the plan administration team from personal liability that may arise from decision-making.
- Provide at least three distinct investment options for 401(k) investors to choose from. For example, you might offer higher-risk, moderate risk and risk-free options (guaranteed investment contracts or money markets).
- Conduct a periodic review of your compliance with COBRA. This by itself can be a substantial project, as you have to keep track of changing eligible family beneficiaries.
- Double-check your information and data security provisions. The Health Insurance Portability and Accountability Act imposes a series of specific and implied tasks on plan administrators, technology and managerial employees designed to protect personally identifiable information related to health care and status. Failure to protect this information could result in devastating penalties for an employer.
Remember: If plan administrators or sponsors violate their fiduciary duties to plan beneficiaries, these beneficiaries may have a right to sue for damages under ERISA. The duties of a plan administrator shouldn’t be taken on without careful consideration and commitment. If you have questions about your fiduciary responsibilities, contact your legal adviser as soon as possible.
The assurance team at Ryan & Wetmore is vastly experienced in employee benefit plan audits.
Contact us with your questions regarding this and similar topics.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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