Fiduciaries are potentially exposed to personal financial liablity

401(k) plan fiduciaries include anyone that exercises discretionary control over any aspect of the plan. Typically the plan document names one or more trustees. Those trustees are clearly plan fiduciaries. What is often misunderstood is that HR people, payroll people and others that perform plan related tasks can also be fiduciaries, just with a different scope of responsibility. In all cases plan fiduciaries are potentially subject to personal financial liability. The department of Labor expects those dealing with participant’s retirement money to take these responsibilities seriously.

Since the only way to avoid personal liability is to not become a fiduciary at all those that do take on the role of a fiduciary should focus on mitigation – maximizing fiduciary protections as these responsibilities cannot be entirely delegated away.

Employers with the resources to do so should consider including an ERISA attorney, an attorney specializing in retirement plan related law, to their panel of advisors. ERISA also covers other benefit programs such as health plans so this attorney would also help in that regard. Being prepared helps fiduciaries avoid situations that might lead to liability and that would be the role of the attorney. Many smaller employers don’t really have an extra ten thousand dollars or more per year to spend on an attorney making this option impractical. For those employers a more realistic approach would be to employ one or more of the tools available to them that can help maximize protection from liability.

Fiduciary training, indemnification agreements, fiduciary insurance, investment policies, as well as selection and monitoring processes and documentation are among these tools. Plans that wish to make the effort can adopt section 404(c) within their plan. By following a predetermined set of rules plan fiduciaries can pass liability for investment decisions made by participants to the participant.

An experienced advisor should be able to articulate how these tools help the plan fiduciaries protect themselves and the limitations of these strategies. Ultimately there is no protection available to plan fiduciaries who willfully fail their duty to plan participants and beneficiaries.



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