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Employers who sponsor employee benefit plans – such as 401(k) and other retirement plans – have a powerful tool to help attract and retain talented people, to aid employees in investing for their retirements, and to potentially obtain tax benefits for both the employer and employee.
However, administering a retirement plan and managing its assets imposes specific responsibilities on employers. To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries).
Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. For example, ERISA generally defines a fiduciary as a person who either:
Since using discretion in administering and managing a plan or controlling the plan's assets is a determining factor, it's important to note that fiduciary status is based on the functions performed for the plan, not just a person's title. A plan’s fiduciaries will typically include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.
An employee benefit plan fiduciary's responsibilities generally include managing plan assets solely in the interest of participants and beneficiaries (with the care a prudent person would exercise) and diversifying investments to minimize the risk of large losses unless it is clearly not prudent to do so.
Specifically, the Department of Labor says that plan fiduciaries are responsible for:
This is all very significant, not only because a fiduciary has a moral obligation to the plan's participants, but also because under ERISA, a plan fiduciary is personally liable to the plan for losses resulting from a breach of his or her fiduciary responsibility. In addition, the fiduciary must restore to the plan any profits realized from the misuse of the plan's assets.
Accordingly, some key employee benefit plan fiduciary duties to consider:
Still, have more questions about your role as an employee benefit plan fiduciary? Reach out to your CPA to learn more.
Delap, one of Oregon's largest locally owned accounting and financial services firms, delivers innovative and proactive financial solutions to businesses, business owners, and wealthy individuals and families. We are active members in the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC), and our employee benefit plan audit team participates in various EBPAQC trainings during the year to stay current on ERISA and DOL regulations. You can rely on our expertise to provide efficient employee benefits plan audits and consulting for your organization.