The Fiduciary Responsibilities of Employee Benefit Plan Sponsors
If a plan is investigated by the Department of Labor and it is found the fiduciary did not act in the best interest of the plan participants, the fiduciary may be personally required to restore funds directly to the plan or participants.
Fiduciary responsibilities can be complex and cover a broad range, but here are three main points of responsibility:
- The fiduciary must monitor fees and the performance of service providers. This means that the plan should only pay reasonable fees to service providers including auditors, investment advisors, and third party administrators. The Employee Retirement Income Security Act (ERISA) has not defined what it considers to be a “reasonable fee,” and it is clear that the lowest fee is not always provided by the most appropriate service provider. For a fiduciary to demonstrate that they are paying only reasonable fees, it would be wise to develop, implement, and document a process in which service providers and their fees are reviewed, evaluated, and approved on a regular basis.
- The fiduciary should ensure that contributions are made timely. ERISA requires that contributions must be deposited as soon as reasonably possible, but no later than the 15th business day of the month following the payday. However, if the employer is reasonably able to segregate and deposit the funds sooner, they are required to do so. ERISA has created a safe harbor for small plans (less than 100 participants) that consider any deposits within seven7 business days to be timely.
- The fiduciary is also responsible for monitoring and evaluating investments. The Supreme Court recently ruled that plan fiduciaries have a responsibility to monitor investments on an ongoing basis and make changes to funds and classes of funds available to participants. This emphasizes the danger of carefully choosing funds but not continuing to evaluate the performance and availability of better funds or classes available.
If you have concerns or questions about employee benefit plans or fiduciary responsibilities, contact Simon Lever today, and let’s start a conversation.
By Rebecca S. Walck, CPA