In order to stay competitive and retain the best workforce, most companies offer their employees benefits that go above and beyond those required by law. These additional benefits often include retirement, health, and life insurance plans. While offering employee benefit plans can be rewarding for employers, it can also be among the most challenging activities an employer can undertake. Managing benefit plans is a great responsibility that falls to those with fiduciary duty.
Who or what is a fiduciary?
A fiduciary is a person or entity to which assets are entrusted for the benefit of another person or people, and fiduciary oversight is involved in many aspects of plan administration.
According to the Department of Labor, “Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.”
The DOL website explains that a plan must have at least one fiduciary, either a person or an entity, named in the plan’s written description. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or the company’s board of directors. This fiduciary will have control over the plan’s operation. The key to determining whether an individual or an entity is a fiduciary, the DOL says, is whether they are exercising discretion or control over the plan.
Non-fiduciary decisions related to a plan
“A number of decisions are not fiduciary actions but rather are business decisions made by the employer,” according to the DOL. “For example, the decisions to establish a plan, to determine the benefit package, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions not governed by ERISA.”
When making these decisions, an employer is acting on behalf of the business rather than the plan and, therefore, is not acting as a fiduciary.
The Employee Retirement Income Security Act of 1974 (ERISA) regulates and sets standards for the fiduciary duties related to employee benefit plans. ERISA confirms the prudent-person rule found in common law, which directs that the same discretion should be used when investing on another person’s behalf as if that person in the same situation were investing for herself. But ERISA also set higher standards of fiduciary duty for those who have control over a plan's assets.
Under ERISA, fiduciaries must act in the best interests of the plan and its participants. ERISA also obliges plan fiduciaries not to rely on their own expertise; they must engage qualified advisers and managers if they lack the expertise themselves. ERISA’s prudent-person standard requires that fiduciaries "diversify the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so." ERISA notes prohibited transactions and says that fiduciaries have a duty to administer the plan "in accordance with the documents and instruments governing the plan."
Fiduciary duties outlined in the plan document must be consistent with ERISA.
The U.S. Supreme Court recently confirmed that not only must fiduciaries prudently select investment options for the employer’s 401(k) plan, but they must also monitor and “systematically consider” those selections at regular intervals to determine if they are appropriate. The investments in question were selected by the plan’s fiduciaries in 1999, but the court denied them the benefit of a six-year statute of limitations as a defense in a suit by employees, concluding that the employees could make their claim as long as the investments were in the plan. Tibble v. Edison Int’l, 2015 WL 2340845 (U.S. 2015)
Additional information on ERISA and its prescribed fiduciary duties can be found at the DOL website.
Who can help?
Given the complexity of ERISA and the ever-changing laws governing employee benefits plans, it’s imperative for employers who offer plans—or are considering it—to have knowledgeable legal counsel on their side. Based in Buffalo, New York, Lipsitz Green Scime Cambria's employee benefits attorneys are well equipped to handle the myriad issues that affect employers and their benefit plans. Named to U.S. News & World Report/Best Lawyers' "Best Law Firms" for employee benefits (ERISA) law, the firm is widely acclaimed as a leader in the employee benefits field.
This article does not purport to give legal advice and is for informational purposes only.