As an employer, managing a retirement plan comes with a significant responsibility. You have the fiduciary duty to act in the best interest of your employees who participate in your employer-sponsored retirement plans. This means that you must act with care, skill, prudence, and diligence.
It’s essential to understand that fulfilling this responsibility potentially involves personal liability for the decisions you make and the actions you take.
As the employer, you have a legal obligation to act in the best interests of your employees who participate in your retirement plan. This means that you must fulfill specific duties, including:
- Competitively selecting plan service providers and monitoring their performance: You must select service providers who can offer high-quality services and reasonable fees. Regular monitoring of their performance can help ensure that they continue to meet the plan’s needs.
- Checking plan investments for performance and cost on an ongoing basis for internal fund expenses, loads, etc.: You must ensure that the plan’s investments are performing well and that costs to employees
- Plan administration duties and responsibilities: This includes monitoring eligibility, participant enrollment and education, managing deferrals, timely deposits and distributions, delivery of notices, and strong operational systems with the various providers and advisor who can assist in meeting these duties.
- Building, maintaining, and documenting a plan governance process: Establishing a governance process can help ensure that the plan is being managed effectively and in compliance with all laws and regulations.
- Acting solely in the interest of plan participants: This means that decisions must be made with the participants’ best interests in mind, even if it conflicts with your personal interests.
- Exercising prudence in selecting suitable investments: You must carefully evaluate potential investments to ensure that they are suitable for the plan and its participants. This includes considering factors such as risk, return, time horizon, and diversification.
- Providing a diversified investment menu lineup: You must ensure that the investment options available to participants are diverse and meet the needs of all participants.
- Following all plan documents (unless they conflict with applicable laws): You must follow all plan documents, including the plan adoption agreement and summary plan description.
- Ensuring reasonable expenses for TPA costs, Advisor Fees, etc.: You must ensure that all expenses associated with the plan are reasonable and necessary. These fees are sometimes covered by the employer, sometimes by the employee, and sometimes by both. What’s more, they might be clearly stated, or somehow hidden or undisclosed.
- Keeping documents up-to-date for law and regulatory changes: It’s essential to stay up-to-date with all law and regulatory changes that may impact the plan and ensure that all documents are updated accordingly.
- Avoiding conflicts of interest: You must avoid conflicts of interest that could influence your decisions.
If you fail to fulfill this obligation, it can result in significant consequences, including personal liability for you. This means that if you make decisions that result in financial losses for the retirement plan or your participants (your employees), you could be held personally liable for losses incurred by the retirement plan or the participants due to your actions – or even, your inactions.
Personal liability can result in significant financial consequences for employers, both financially and reputationally. Employers who are found to have breached their fiduciary duty can be subject to legal action, which can result in costly fines and settlements.
Additionally, employers who are found to have acted inappropriately or negligently with their retirement plan can suffer reputational damage, which can lead to difficulty attracting and retaining top talent.
Lawsuits on the Rise
Recent years have seen a significant increase in fiduciary litigation against retirement plan sponsors. Since 2020, there have been more than 200 new class-action lawsuits brought under the Employee Retirement and Income Security Act (ERISA), and more than 100 new cases alleging breaches of fiduciary duties. It’s essential to take proactive steps to protect yourself and your business.
Retirement plans can be incredibly complicated, with multiple layers of responsibility and accountability. As an employer, you may not have the time, expertise, or resources to manage your retirement plan effectively. This is where we can be invaluable. One of the most effective ways for employers to reduce their risk of fiduciary litigation is to work with us.
We can provide guidance and expertise on investment options, plan design, participant education, plan administration, and compliance issues, which can help you make informed decisions in the best interest of
This can help reduce the risk of your personal liability while ensuring that the retirement plan is well-managed and meets the needs of your employees. We can help you stay up-to-date with changing regulations and industry trends, ensuring that your plan remains competitive and attractive to employees.
We’re committed to helping employers like you manage their retirement plans and fulfill their fiduciary duty. Click below to see how we can be of help to you and your business – and take the load off some of your responsibility and obligations.