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The common duties of a fiduciary, records that need to be maintained, and rules for compliance with ERISA.

Not only is it a good practice for purposes of operating your plan in accordance with its terms, but it is also important for purposes of mitigating any possible plan-related legal issues (e.g., an Internal Revenue Service (IRS) audit, a Department of Labor (DOL) audit, participant claims, etc.).

Yes, the below chart describes common duties, though it is not intended to be an all-inclusive list.


[Common duties chart]

Duty of loyalty

- Act solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them.

Duty to disclose

- Respond fully and accurately to all participant inquiries.

- Tell the truth and deal honestly with all plan participants on all transactions.

- Avoid misrepresenting plan provisions by failing to provide all material information participants need. Ensuring a copy of the summary plan description outlining the plan document terms is available to all participants will help in this area.

- Provide participants with summarized financial reporting of the plan at least annually.

Duty of prudence

- Perform all tasks and duties with skill, prudence and diligence.

- Consider obtaining fidelity bond protection to protect against losses due to fraudulent or dishonest actions in handling plan funds.

- Ensure plan-related investments are prudent and solely in the interest of the plan participants and beneficiaries.

- Complete all due diligence required for evaluating the risks associated with the investment selections offered in the plan.

- Select investment providers and investment options. Monitor the performance of each on a routine and ongoing basis.

- Avoid any activity that can be construed as a conflict of interest between the plan, the plan administrator or its participants.

- Ask for expert advice when needed. Ignorance is not necessarily regarded as a sufficient reason by the IRS or the DOL for failing to perform fiduciary duties appropriately.

Duty to diversify

- Select plan investments from a variety of categories and risk levels to minimize the risk of large losses.

Duty to follow plan document provisions

- Maintain copies of all correspondence including: plan document, summary plan description, amendments to the plan document and the service provider agreement.

- Ensure all contributions are remitted timely.

- Pay only reasonable expenses for plan administration and asset investments.

Duty not to engage in prohibited transactions

- Do not use plan assets for your own interest.

- Do not use plan assets to pay any expenses not specifically authorized in the plan document.

- Assets and earnings cannot enrich the plan fiduciary.

- Do not associate with or engage in activities related to political campaigns.

As the plan sponsor, be sure you maintain detailed records of:

  • Investment Policy Statement (IPS) (if an IPS has been adopted)
    • Document all due diligence relating to the IPS
  • Plan documents, Summary Plan Descriptions (SPDs if the plan is subject to ERISA), amendments, board resolutions, etc.
  • Monitoring reports that you may have received from investment managers, third-party administrators or others
  • Participant notifications and communications, such as:

    • Summary Plan Descriptions (SPDs)
    • Fee Disclosures
    • Summary Annual Reports (SARs)
    • Universal Availability Notices (for 403(b) plans)
    • Black-Out Notices

For non-ERISA plans

  • Universal Availability Notices (for 403(b) plans)
  • Black-Out Notices
  • Communications required under state law
  • Discrimination test results (generally, applicable to ERISA plans)
  • Compliance documentation and reporting
  • Signed Form 5500s (applicable to ERISA plans), compliance documentation
  • Financial audits (required for ERISA plans)
  • Results of any IRS and/or DOL inquiry or audit
  • Proof of fidelity bonds (for ERISA plans)
  • Proof of fiduciary insurance (for ERISA plans)
  • Corporate or advisory committee minutes
  • Documentation memorializing decisions regarding the plan
  • Documentation regarding investment providers and products

To be compliant with ERISA Section 404(c), you should be able to answer “yes” to all of the following questions:

  • Are at least three investment choices provided, each with materially different risk/return characteristics?
  • Can participants choose their own investments?
  • Can each investment option be classified as a “prudent” investment?
  • Can participants change their investment allocations and transfer among investment accounts at least once each calendar quarter?

Have participants been provided with:

  • A statement that the plan intends to comply with ERISA Section 404(c)?
  • Descriptions of each investment option? (Objective, risk/return characteristics, asset diversification, performance, sales charges and other expenses, plan fiduciary identification, and identity of the portfolio manager)
  • Identification, including name, address and telephone number, of the plan fiduciary who is responsible for ensuring 404(c) compliance?
  • Directions on how to select investments and change investment selections?
  • Prospectuses?
  • Access to regular account statements?

If the plan complies with 404(c), then you are not liable for participants’ investment decisions. However, you are liable for selecting investments or deciding to retain them.

You are obligated to monitor the investments and ensure continued 404(c) compliance. As we discussed earlier, make sure you follow the plan document because you are liable for ensuring compliance.

The Department of Labor offers extensive educational materials, as well as legislative and regulatory updates, on their website: www.dol.gov/ebsa. It is a useful resource for ongoing education.