So you’re in charge or your company’s retirement plan… what does this mean for you?
The Employee Retirement Income Security Act (ERISA) protects your plan’s assets by subjecting those in charge of the plan with fiduciary responsibilities. Plan fiduciaries may include plan trustees, plan administrators, and members of a plan’s investment committee.
Your primary responsibility as the fiduciary is to operate the plan for the benefit of the plan participants and beneficiaries. This falls under both Title I (DOL provision) and Title II (IRS provision) of ERISA. You’re also required to act prudently, diversify the plan’s investments in order to maximize the risk of a large loss, and only pay reasonable plan expenses. It also goes without saying that you’re to follow the terms of the plan document and avoid conflicts of interest.
The Department of Labor has published a PDF for plan sponsors, Meeting your Fiduciary Responsibilities.
In terms of plan operation, as a fiduciary you should:
- Deposit plan contributions in a timely manner
- Contributions and loan repayments should be made as soon as the employer can reasonably segregate the amounts from its general assets. If your plan has fewer than 100 participants, it’s no later than the 7th business day following the withholding.
- Monitor service providers to ensure they’re handling their contracted functions prudently (document in writing)
- Review their SSAE16 report or any other reports provided
- Check the actual fees charged
- Ensure that plan records are properly maintained
- Follow up on participant complaints
- Evaluate fees charged for reasonableness
- This should be documented in writing
- Not engage in prohibited transactions. Some examples include:
- A sale, exchange or lease between the plan and a party-in-interest
- Lending money between the plan and a party-in-interest
- Furnishing goods, services, or facilities between the plan and a party-in-interest
- Using plan assets in your own interest
- Acting on both sides of a transaction involving the plan
A person who breaches their fiduciary responsibility may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions. A fiduciary’s breach may also include a 20% penalty assessed by the DOL, removal of their fiduciary position, and in extreme cases, criminal penalties.
A fiduciary can limit their liability by documenting their process used to carry out their fiduciary responsibilities. They can also hire service providers to perform plan functions. Additionally, every person who handles plan assets must be covered by a fidelity bond. This type of bond protects the plan against financial loss by reason of acts of fraud or dishonesty by individuals covered under the bond.
If you find yourself overwhelmed with fiduciary responsibilities, reach out to your auditor or trusted advisor to avoid any pitfalls or potential liabilities.
About the Author
Erin Ezdon, Supervisor, joined Wegner CPAs in January 2013 as a senior accountant in the assurance department. Prior to joining Wegner CPAs, Erin spent 6 years working for a regional audit firm where her experiences included performing financial statement and compliance audits of a number of different not-for-profit organizations, school districts, commercial entities and employee benefit plans.
