If you manage an employee benefit plan under the Employee Retirement Income Security Act (ERISA), you are considered a fiduciary. That means that the federal government expects you to act in accordance with the strictest ethical standards for fair dealing and good faith recognized under the law. It’s a lot of responsibility, of course. But these assets are critically important to employees’ retirement security, and therefore the federal government expects its plan administrators to act as effective watchdogs over these assets.
As a fiduciary, you are expected to adhere to the following standards:
- You must act solely for the benefit of your plan beneficiaries, with the exclusive purpose of providing benefits to them.
- You must be prudent in your decision-making.
- You must act in accordance with published plan documents (to the extent these documents themselves are in accordance with the ERISA law.).
- You must keep plan assets diversified.
- Your plan expenses must be reasonable.
That said, of course, not every plan sponsor is an investment, pension or health care expert. In these cases, your role as a fiduciary requires you to hire outside expert help. But you are still responsible to provide oversight over the process.
Administrative best practices
Communicate plan benefits, terms and eligibility criteria to plan beneficiaries, using approved documents.
You must ensure your company is in compliance with other federal laws affecting plan benefits. For example, you must provide extended health insurance benefits to qualified employees and dependents under the Consolidated Omnibus Reconciliation Act, or COBRA. This in itself requires a concerted communications and compliance effort on the part of plan administrators.
Additionally, familiarize yourself with the Health Insurance Portability and Accountability Act This law created protections for individuals with preexisting conditions seeking medical insurance, and also imposes a number of privacy obligations on employers wit possession of individually identifiable medical information on employees and customers.
Focus on Processes
Occasionally, plan beneficiaries or regulars may have an issue with how your plan performs, or how you or the other members of the plan administrative team conduct themselves. In these cases, investigators will focus on the decision-making process. To minimize your personal exposure to risk, take the following measures:
- Have a clear and specific written investment policy statement.
- Make investment decisions in accordance with your investment policy statement and other plan documents.
- Have a clear and objective criteria in place for selecting outside vendors.
- Set clear targets for diversification in plan assets.
- Consider putting directors and officers’ insurance in place to help shield you and your fellow fiduciaries from errors or omissions in your role as a fiduciary.
- If you allow 401(k) beneficiaries control over their investments, give them at least three distinct investment options.
- Monitor the decisions of investment professionals you hire to make decisions on behalf of your plan.
- Document your decision-making processes.
- Keep minutes of plan administrator meetings.
- You must communicate your plan benefits, terms and eligibility criteria to plan beneficiaries, using approved documents.
- Establish a formal grievance and appeals process and see that this process is communicated to plan beneficiaries and is simple to use. If there are fiduciary breaches, beneficiaries may have the right to sue for damages under ERISA.
For more information, or to schedule a review of your processes and documents, contact your employee benefits professional.