"Pension Trends" Newsletter

Pension Trends Volume V, No. 2, May 2004 printer friendly

In this issue...

Managing Fiduciary Responsibilities and Liabilities

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Managing Fiduciary Responsibilities and Liabilities

The U.S. Department of Labor recently announced a new nationwide campaign called “Getting It Right – Know Your Fiduciary Responsibilities.” It is intended to educate employers and their advisors about their fiduciary responsibilities.

We checked out the DOL’s related website and some of the material available at the site. We highly recommend you do the same. The website address is http://www.dol.gov/ebsa. It is full of useful and valuable information covering a broad range of retirement plan issues for plan sponsors and for their advisors.

In addition to the information available at the website, the DOL will conduct a series of educational seminars “to help plan sponsors understand the rules and meet their responsibilities to workers and retirees....” The seminars are scheduled for Florida, Ohio, Massachusetts, and Arizona starting in June.

But what caught our eye is a publication that can be downloaded from the website. It is entitled Meeting Your Fiduciary Responsibilities. It is written plainly and aimed directly at the small to midsized business that sponsors a retirement plan.

Most importantly, it provides honest-to-goodness useful advice – advice that if followed will minimize the liability associated with acting in a fiduciary capacity. Because with fiduciary responsibility comes fiduciary liability. With fiduciary liability comes potential litigation. With potential litigation comes unpleasantness and financial exposure. Minimizing fiduciary liability is good sense and good business.

Here is a sampling of the advice found in Meeting Your Fiduciary Responsibilities.

	Fiduciary status is based on the functions performed for the plan, not just a person’s title.
	The key to determining whether an individual is a fiduciary is whether he is exercising discretion or control over the plan.
	Some decisions are not fiduciary actions but rather are business decisions made by the employer. For example, decisions to set up, amend, or terminate a plan are business decisions.
	Fiduciaries are subject to standards of conduct because they act on behalf of participants and their beneficiaries.
	Fiduciaries who do not follow the basic standards of conduct may be personally liable.
	Fiduciaries must act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them. [Editorial comment: Since many business owners are also fiduciaries, it is important to know when someone is acting as an owner making business decisions and when someone is acting as a fiduciary and is therefore obligated to act only in the best interest of the plan participants and beneficiaries.]
	Fiduciaries must carry out their duties prudently. Prudence focuses on the process for making fiduciary decisions.
	One way fiduciaries can demonstrate that they have carried out their responsibilities prudently is by documenting the processes they used to carry out their fiduciary responsibilities. [Editorial comment: We believe this is the key area where most small to midsized plan sponsors/fiduciaries fail to adequately limit their liability.]
	Following the terms of the plan document is also an important responsibility.

We encourage all plan sponsors and their advisors to read Meeting Your Fiduciary Responsibilities and to follow the advice it offers in addition to consulting with legal counsel. Being an informed fiduciary is not a substitute for good legal advice. It is all part of the process getting the most out of your retirement plan while at the same time wisely managing your fiduciary responsibilities and liabilities.

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This newsletter has been published in order to share general information with our professional contacts. The information presented in this newsletter should not be relied upon without first seeking the advice of a CPA, Attorney or other benefit professional.