Are You an ERISA Fiduciary?
How can you determine if you are an ERISA fiduciary? As a general rule, you are a fiduciary of an employee benefit plan if you meet any one of the following tests.
- You exercise discretionary authority or control over plan assets or plan management.
- You are specifically identified in the written documents of a plan as a named fiduciary.
- You have discretionary responsibility in the administration of the plan.
- You manage the plan or its assets or render investment advice for a fee.
The good news is that your liability can be diminished by acting in a procedurally prudent manner. Therefore, you must follow the key fiduciary standards established under ERISA. You must be careful that all activities performed and all decisions made in the operation of your benefit plans are for the exclusive purpose of providing benefits to plan participants. ERISA requires fiduciaries to make decisions based solely on the best interest of plan participants.
You must exercise the same care, skill, and diligence that a “prudent person” familiar with the administration of employee benefit plans would exercise in managing similar matters. Acting in “good faith” is not enough. If a fiduciary lacks the expertise to meet the “prudent person” rule, ERISA requires a fiduciary to hire experts to help. When selecting plan consultants, trustees, or advisors, you must avoid selecting friends, acquaintances, or colleagues solely on the basis of their relationship with you. ERISA identifies criteria for selecting outside advisors, including the reasonableness of fees, qualifications and experience, license registration, business reputation, and client references.
Under ERISA, fiduciaries of retirement plans are required to diversify investments to minimize the risk of large losses. Plan fiduciaries may be relieved of the duty to diversify if the plan complies with the requirements of ERISA Section 404(c). ERISA also imposes disclosure requirements to provide various documents to participants, including summary plan description and summaries of material modification, summary annual reports, account statements, and fund descriptions. Finally, a fiduciary must act in a manner that is consistent with the legal documents of the plan.