Offering a retirement plan can be one of the most challenging decisions, but rewarding, it can take an employer. The employees participating in the plan, beneficiaries and employer benefit by implementing a retirement plan. However, administration of a plan and manage its capital require certain actions and involve specific responsibilities.
Fiduciary Responsibilities for Employers and Retirement Plans
To fulfill its responsibilities as plan sponsors, employers need to understand some basic rules, including ERISA. ERISA sets standards of conduct for those who manage a benefit plan for employees and their capital (trust called). The document compliance of its fiduciary responsibilities provides an overview of basic fiduciary responsibilities that apply to retirement plans according to law.
This booklet addresses the scope of the protections offered to ERISA retirement plans in the private sector (ERISA does not cover plans in the public sector and church-sponsored plans). It provides a simplified explanation of the laws and regulations. This publication is not a legal interpretation of ERISA or intended to replace the advice of a professional retirement plans. Nor does it cover the provisions of the federal tax law related to retirement plans.
What are the essential elements of a retirement plan?
Each plan has certain essential elements; among which are included:
- a written plan that describes the structure of benefits and directs the daily operations;
- a trust fund to preserve capital plan;
- a system of records to track the movement of money in the retirement plan; and
- documents to provide information about the plan to participating employees and the government.
Usually, employers hire outside professionals (often referred to external service providers) or, if applicable, use an internal administrative committee or HR department to manage part or all of the daily operations of the plan. In fact, there may be one or more officials with decision-making on the plan. These are called plan fiduciaries.
Who are the trustees of a retirement plan?
Many activities related to the operation of a turn to the person or entity who performs in a trust plan. The person who has power of decision to administer and manage a plan or control their capital is considered a fiduciary to the extent of that power or control. Therefore, the nature of trust is based on the functions performed for the plan , not only in the title of the person.
A plan must have at least one trustee (a person or entity) who shall be designated in the written plan or through a process described in this plan and will have control over the operations of the plan. The appointed trustee can be identified by their title or name. For some plans, it may be an administrative committee or board of directors of the company.
Typically the trustees plan fiduciaries, investment advisors, all persons who have say in the administration of the plan, all members of the administrative committee of the plan (if any) and persons selected officials included committee. Lawyers, accountants and actuaries generally not considered fiduciaries to act only in his professional character. The key to determining whether a person or entity is considered a fiduciary is whether decision-makers possess or exercise control over the plan.
Trustee of Retirement Plan
Some decisions are not considered actions of the trustee but commercial decisions made by the employer. For example, decisions to establish a plan to determine a benefits package to include certain features in a plan, or to amend or terminate are business decisions that are not governed by ERISA. In making these decisions, an employer acts on behalf of your company and not the plan; therefore, it is not considered a fiduciary. However, when an employer (or anyone employed by it) takes steps to implement these decisions, this person acting on behalf of the plan and carrying out these actions can be considered a fiduciary.
What does being a trust mean?
Fiduciaries have important responsibilities and are subject to standards of conduct and acting on behalf of the participants in a retirement plan and their beneficiaries. These responsibilities include:
- act solely for the benefit of plan participants and their beneficiaries, with the sole purpose of providing benefits;
- perform their duties prudently;
- comply with the provisions of the plan documents (unless these are contradictory ERISA);
- diversify plan investments; and
- pay only reasonable plan expenses.
The duty to act prudently is one of the main responsibilities of fiduciary under ERISA. Experience required in different areas, such as investment. If you are new, the trustee should hire someone with such professional knowledge to undertake investments and other functions. Prudence focuses on the process of making trust decisions. Therefore, it is advisable to document decisions and their rationale. For example, when hiring a service provider of any plan, a trust may want to evaluate several potential suppliers, requesting the same information and requiring the same requirements. Thus, the trustee can document the process and make a meaningful comparison and selection.
Compliance with Plan Documents
Compliance with the terms of the plan document is also an important responsibility. The document is the basic principle for operations plan. Employers should become familiar with your plan document, especially if it is written by an external service provider, and review it periodically to ensure that it remains current. For example, if the designated official plan document is modified, the plan should be updated to reflect this change.
Another fiduciary duty is diversification, which minimizes the risk of major investment losses for the plan. Fiduciaries should consider each investment plan as part of the complete portfolio of plan. Again, the Trustees shall document its assessment and investment decisions.