Am I A Fiduciary?
by Chizoba Egbuonu, J.D.
ERISA Attorney at Carroll Consultants, Ltd.
When I was an investigator at the Department of Labor (DOL), I remember having to interview plan fiduciaries regarding their roles and responsibilities. It was not unusual for the interviewee, usually a Human Resource Director or CFO, to immediately say ai???I am not a fiduciary.ai??? They usually followed this up with ai???our outside consultants do all the work, so they are the fiduciaries.ai??? It is important for plan sponsors to understand who the fiduciaries are at the company because a breach of oneai??i??s fiduciary duties may result in personal liability to the plan.
Who Is A Fiduciary?
A person is a fiduciary only to the extent he or she is performing a fiduciary function.
To be a fiduciary, the person must take discretionary action with respect to management and administration of a plan or be in control of the planai??i??s assets. In every plan, there must be at least one fiduciary named in the plan document, or selected through a process described in the plan. The named fiduciary may be identified by title, name, or as an administrative committee. A planai??i??s fiduciaries may
include the following individuals: the trustee, plan administrator, investment advisors, all members of the planai??i??s administrative committee, and those who select committee members. Typically, attorneys, accountants, actuaries, independent appraisers are not considered fiduciaries if they are acting solely in their professional capacities and do not exercise discretion or control over the plan. Accordingly, fiduciary status is based on the functions the person is performing for the plan, not just his or her title.
What Does Settlor Function Mean?
A plan sponsor may make decisions involving the plan that are business decisions. When the plan sponsor makes such business-related decisions, he or she is not engaging a fiduciary activity, but rather what is called a ai???settlor function.ai??? However, when the plan sponsor takes steps to implement these settlor decisions, they may be acting as a fiduciary because the implementation may require exercise of discretion. Examples of settlor functions are decisions to establish, amend, or terminate a plan. An example of implementation of a settlor decision that would be considered a fiduciary function is the process of selecting an annuity provider for participants after making the decision to terminate the plan.
In addition to settlor functions, fiduciary activities do not include what DOL terms ai???purely ministerial functions.ai??? These are functions performed by persons who have no power to make any decisions and are simply performing administrative activities for the plan within a framework of policies, interpretations, rules, practices and procedures made by other persons, or fiduciaries. The following are a few examples of activities the DOL regulations consider to be purely ministerial functions:
Why Is It Important to Know Who Is A Fiduciary?
Fiduciaries have statutory duties under ERISA that they must comply with. In carrying out these duties, fiduciaries are held to the highest standard of conduct. These statutory duties include:
The duty of loyalty requires that the fiduciary act solely in the interest of plan participants and beneficiaries when performing fiduciary functions. Essentially, a fiduciary must not put his or any other personai??i??s interest before that of the planai??i??s participants and beneficiaries. The duty of prudence focuses on the process followed when making fiduciary decisions. This is one of the most important duties because it comes into play in every activity undertaken by the fiduciary. The plan document governs all aspects of plan
administration. Therefore, a fiduciary must act in accordance with the document, unless doing so would violate ERISA. Duty to diversify is also important because a diversified investment pool helps minimize the risk of investment losses to the plan.
In addition to the four duties outlined above, fiduciaries must also avoid engaging in ai???prohibited transactions.ai??? These are plan-related decisions that either directly or indirectly benefit persons related to the plan or the fiduciaries themselves. An example of a prohibited transaction would be a fiduciary purchasing a building with plan assets and leasing the building to the plan sponsor.
What Are Some Best Practices For Plan Fiduciaries?
Adopting best practices can help plan fiduciaries protect themselves from personal liability. The following are examples of best practices that can be implemented to ensure the plan is in compliance with ERISA and that the fiduciaries are fulfilling their obligations:
It is important for plan sponsors to understand when they are acting as fiduciaries and what their responsibilities are to the plan. With knowledgeable professionals guiding you through the fiduciary decision making process and putting the right process in place for your plan, fiduciaries should be able to ensure future compliance.
Prior to joining CCL, Chizoba Egbuonu, J.D., worked as an attorney for the Pension Benefit Guaranty Corporation and as a Senior Pension Investigator for the U.S. Department of Labor, Employee Benefit Security Administration.
Carroll Consultants, Ltd. (CCL) is a leading provider of retirement plan services. As part of its investment advisory services, Carroll Consultants Advisors, Ltd. (a subsidiary of CCL) provides fiduciary education and investment advice to plan fiduciaries. To learn more on how Carroll Consultants Advisors, Ltd. can help you and your plan, please contact Marcie Carroll, (610) 225-1210, or firstname.lastname@example.org.