An employee places much trust in an Employee Retirement Income Security Act (ERISA) fiduciary. Because they have the responsibility to act on behalf of retirement plan beneficiaries, the United States Department of Labor (DOL) holds plan fiduciaries to certain standards of conduct. The DOL has specified the following duties for all ERISA fiduciaries (the following points are quoted directly from DOL materials):
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless inconsistent with ERISA);
- Diversifying plan investments; and
- Paying only reasonable plan expenses.
The list can easily intimidate the typical plan sponsor, trustee or executive. The DOL, however, understands the plan fiduciary cannot always carry an expertise in such a diverse variety of areas. In such a case, the fiduciary may limit fiduciary liability by hiring knowledgeable professionals to handle specific duties. The DOL focuses not on the end result, but on the due diligence process exhibited by plan fiduciaries. The DOL looks for prudence and considers it “wise” to document procedures and the decision making process, including any meaningful comparisons used when selecting vendors, investments or any other choice the plan fiduciary faces.
The plan fiduciary conducts this prudent due diligence by closely adhering to the terms and procedures of the plan document. If a fiduciary relies on a vendor to provide plan documents, then the fiduciary will especially want to regularly review such documentation to insure it reflects any changes in or specifics of the plan.
Finally, prudence maintains that the fiduciary must undertake diversification, especially when it comes to investment options. Such diversification helps mitigate investment losses over the plan’s entire portfolio. As before, this is a process that should be documented – ideally through an investment policy statement – and periodically reviewed.
