Welcome to the world of retirement plan administration! As a new plan sponsor, you have taken on an essential role within your organization with longstanding impact. You’ll find you have many responsibilities, a key amongst them being your fiduciary responsibility. But when it comes to your fiduciary duties, what’s involved? Join us as we discuss fiduciary duty and what responsibilities your role brings.
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Understanding Fiduciary Duty
A fiduciary is a person who legally and ethically owes the duty of care and trust to another person and must act primarily for the benefit in a specific activity. In this case, acting for others to benefit their retirement plans.
Different fiduciaries have varying roles and responsibilities to the retirement plan. However, here is a shortlist of main duties for fiduciaries:
- Decision-making: Acting solely in the interest of plan participants and their beneficiaries.
- Transparency: Disclosing any conflicts of interest.
- Diversify investments: Plan investments menu must be diversified to reduce the risk of substantial losses.
- Carrying out duties prudently: Carry out duties with care, skill, prudence, and diligence. This includes proper investigation and documentation.
- Responding to inquiries: Fully and accurately respond to all inquiries from a participant or beneficiary.
Who is Considered a Fiduciary?
A plan must have at least one fiduciary named in the written plan.
Fiduciaries typically include the trustee, investment advisers, all individuals making decisions in the administration of the plan, all members of a plan’s administrative committee, and select committee officials.
If someone takes steps to make decisions about the plan, that person is acting on behalf of the plan, and may be a fiduciary.
Multiple people within an organization can have the role of a fiduciary.
Risks of Not Following Fiduciary Duties
If a fiduciary fails to follow fiduciary standards of conduct, the Department of Labor (DOL) has the authority to enforce rules through civil and criminal actions. Furthermore, plan participants and other plan fiduciaries have the right to initiate lawsuits to impose liability for breach of fiduciary responsibilities.
For example, failing to file Form 5500, a government-mandated annual report, the IRS penalizes $25 per day up to a maximum of $15,000, while the DOL can charge up to $2,233 per day, with no ceiling.
Under ERISA (Employee Retirement Income Security Act of 1974), fiduciaries are personally liable for plan losses caused by breach of their fiduciary responsibility and may be required to pay expenses to correct inappropriate actions.
Ensuring Fiduciary Compliance
These consequences sound overwhelming, but there are strategies to ensure compliance.
- Establish policies and procedures: Develop clear, comprehensive policies and procedures to manage and navigate conflict.
- Regular training and education: ERISA regulations change often, so it is essential that fiduciaries take the time to understand the new rules.
- Documentation and audits: To avoid problems bubbling up, document and audit practices to see that they are ERISA compliant and meet fiduciary obligations.
Gain Fiduciary Duty Confidence with California Pensions
Understanding fiduciary duty is crucial to your success in this position. To make sure you can perform your role as a fiduciary with confidence, rely on experts that are committed to educating and guiding you. California Pensions offers customized retirement plan solutions and fiduciary services (offered through Thrivia, Inc.) to assist you in making sure that all fiduciary responsibilities are met. Contact us today for a consultation and discover the California Pensions difference.
