If you are involved in the administration or management of an employee benefit plan, such as a retirement plan or a health plan, you may be subject to fiduciary liability under the Employee Retirement Income Security Act (ERISA) of 1974.
ERISA is a federal law that sets standards for the protection of plan participants and beneficiaries, and imposes duties and responsibilities on plan fiduciaries.
A fiduciary under ERISA is anyone who exercises discretionary authority or control over a plan or its assets, anyone who has discretionary responsibility for the administration of a plan, or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so .
Plan fiduciaries include, for example, plan trustees, plan administrators, and members of a plan’s investment committee.
As a fiduciary, you have the duty to act solely in the interest of participants and beneficiaries, to provide benefits and pay reasonable expenses, and to be prudent, loyal, and diligent in your decisions.
You must also follow the terms of the plan document, diversify the plan’s investments, and monitor the performance of service providers and investment options .
You must avoid conflicts of interest and prohibited transactions that may benefit parties related to the plan, such as other fiduciaries, service providers, or the plan sponsor .
Fiduciary liability is the risk of being sued or held personally liable for breaching your fiduciary duty.
If you fail to meet the standards of conduct required by ERISA, you may face lawsuits from participants, beneficiaries, co-fiduciaries, or the Department of Labor (DOL).
You may have to restore any losses or profits resulting from your actions, pay civil penalties or fines, or be removed from your fiduciary role.
These consequences can have a significant impact on your personal and professional reputation and finances.
Therefore, it is important to consider fiduciary liability under ERISA and take steps to reduce your exposure and protect yourself.
Some of these steps include:
– Documenting your processes and rationale for making fiduciary decisions
– Hiring experts or consultants when needed
– Educating yourself and your co-fiduciaries on ERISA requirements and best practices
– Reviewing and updating your plan documents and policies regularly
– Communicating clearly and timely with participants and beneficiaries
– Obtaining fiduciary liability insurance
Fiduciary liability insurance is a type of coverage that protects both the company and its fiduciaries from claims of a breach in fiduciary duty.
It covers damages and defense costs arising from the administration and management of employee benefit plans.
However, it does not cover intentional or fraudulent acts, criminal penalties, or taxes.
Fiduciary liability insurance is not required by ERISA but it is highly recommended as an additional layer of protection for fiduciaries.
In conclusion, fiduciary liability under ERISA is a serious matter that should not be overlooked by anyone who has a role or influence in an employee benefit plan.
By understanding your fiduciary obligations and taking appropriate measures to fulfill them, you can minimize your risk of liability and ensure that you are acting in the best interest of your plan participants and beneficiaries.
