Employees who participate in private employer sponsored retirement plans place a certain amount of trust in their employers. Participating employees contribute a certain amount of their salary to the retirement fund and they trust that the money will be well invested and available for them upon retirement. In order to protect the retirement money in employer sponsored retirement accounts, the retirement plan managers have certain responsibilities to plan participants.
Fiduciary duties must be exercised by anyone who has discretion in administering or managing the retirement plan or anyone who has discretion or control of the plan’s assets. For many private employer sponsored retirement plans, more than one person will fit this definition. According to the U.S. Department of Labor Employee Benefits Security Administration, everyone who meets this definition must:
- Act for the sole benefit of plan participants and their beneficiaries;
- Follow the requirements of the retirement plan and ERISA;
- Diversify investments; and
- Pay only reasonable expenses related to the plan.
Retirement plan administrators and others who meet the definition of a fiduciary, face significant potential penalties if they fail to comply with the requirements described above. Fiduciaries can be held personally liable for any losses that are directly related to their failure to meet their fiduciary duties.
It is important for fiduciaries to keep careful and detailed records of any actions that they take with regard to the employee retirement plan. These records can later serve as evidence that the fiduciary met his or her duties and that any loss incurred was due to other reasons such as normal market less. Fiduciaries can also limit their potential liability by giving employees at least 3 sound choices of investment options and letting the employee decide which one to follow.
Most plans that have 100 or more employee participants are required to be audited by an auditor at least annually. The auditor must be an independent and qualified certified public accountant. This requirement exists to make sure that retirement plan managers are properly administering the plan and to protect employees. One common concern among retirement plan managers is the cost of annual audits. While it is important to work with an experienced retirement plan auditor and to have a thorough review of the plan, it is possible to save costs by limiting the scope of the review of having a less experienced auditor complete the audit under the direct supervision of a more experienced auditor. If a retirement plan manager seeks to cut costs in either of these ways then it is important to seek the advice of an attorney and to make sure that the audit will fulfill the requirements set forth in by federal law.
There is a lot of work involved in maintaining an employee retirement plan. Therefore, many companies hire service providers to handle the administration of the plan. Those who hire the service providers have a fiduciary duty to make sure that they are diligent in the hiring process so that they hire qualified providers who will work in the employee participants’ best interest.
Employee retirement accounts are a significant employee benefit. Those who administer the plan have legal responsibilities to make sure that employees are protected and that decisions are made in the best interest of the participants.
Speak to an Experienced ERISA Attorney Today
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified erisa lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local erisa attorney to discuss your specific legal situation.