Fiduciary Basics for Benefits Plans

Fiduciary responsibilities are and will continue to be an important aspect of plan administration under the Employee Retirement Income Security Act (“ERISA”). An ERISA plan fiduciary is responsible for acting in the best interest of plan participants and beneficiaries and may be held personally liable for violating the standards required by ERISA and state common law.  Below we identify the common types of plan fiduciaries and the general duties that they must perform in a fiduciary capacity.

Common Plan Fiduciaries

The plan sponsor (most often the Employer) will always be a fiduciary. ERISA allows the plan sponsor to delegate fiduciary duties and appoint other individuals or agencies to act in the fiduciary role, where reasonable.  A plan’s fiduciaries commonly include the plan administrator, plan sponsor, third party administrator, investment advisor/manager, trustees, and anyone in charge of plan administration and the management of plan assets. While a plan sponsor is permitted to divide and delegate certain duties to others, the plan sponsor will remain responsible for the overall plan administration.

Duties of a Plan Fiduciary

ERISA provides that a fiduciary must take the following actions solely in the interest of the participants:

1. Providing benefits to participants and beneficiaries;
2. Defraying costs and expenses of administering the plan;
3. Acting with care, skill, prudence, and diligence under the circumstances;
4. Diversifying investments to avoid the risk of large losses; and
5. Acting in accordance with the governing plan documents.

In addition to the duties imposed by ERISA, there are additional duties that stem from state common law which must also be followed. Common law duties include the duty of care, the duty of caution, and the duty of loyalty, among others. Implicitly implied by these duties are the following expectations: understanding the terms of the plan, selecting and monitoring service providers, making timely contributions, avoiding prohibited transactions, and disclosing proper information to participants about the plan.

A fiduciary who breaches a fiduciary duty may face personal liability for losses of the plan and its participants or for improper use of plan assets. In court, the conduct of a fiduciary will be evaluated in an objective manner. In other words, a court will evaluate whether the fiduciary’s actions were consistent with those actions that a prudent fiduciary would have taken at the time and with the same information available to the fiduciary.  

Our firm has extensive experience in providing guidance and training with regard to fiduciary issues.  If you are interested in receiving more information, please contact one of our Employee Benefits attorneys including the authors of this article:

• Amanda J. Dernovshek (Lansing)...517.371.8259...adernovshek@fosterswift.com
• Julie L. Hamlet (Grand Rapids)...616.796.2515...jhamlet@fosterswift.com
• Mindi M. Johnson (Grand Rapids)...616.726.2252...mjohnson@fosterswift.com