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We are continuing from our previous article about ERISA compliance.  In Part 1, we discussed who is a fiduciary and who is not a fiduciary....

What does it mean to be a fiduciary?
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a group health plan and their beneficiaries.

ERIA requires fiduciaries to discharge their duties with respect to employee benefit plans:
    • Solely in the interest of plan participants and their beneficiaries;
    • For the exclusive purpose of providing plan benefits, or for defraying reasonable expenses of plan administration;
    • With the care, skill, prudence and diligence that a prudent person in similar circumstances would use;
    • By diversifying the plan's investments to minimize the risk of large losses; and
    • In accordance with the plan's documents (unless inconsistent with ERISA).

The duty to act prudently is one of the fiduciary's central responsibilities under ERISA.  It requires expertise in a variety of areas.  Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out those functions.  Prudence focuses on the process for making fiduciary decisions.  Therefore, it is wise a document decisions and the basis for those decisions.  For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential  providers, asking for the same information and providing the same requirements.  By doing so, a fiduciary can document the process and make meaningful comparison and selection.

Following the terms of the plan document is also an important responsibility.  The plan document serves as the foundation for plan operations.  Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current.  For example, if a plan official is named in the document changes, the plan document must be updated to reflect that change.

In addition, a fiduciary should be aware of others who serve as fiduciaries to the same plan, since all fiduciaries have potential liability for the actions of their co-fiduciaries.  For example, if a fiduciary knowingly participates in another fiduciary's breach of responsibility, conceals the breach or does not act to correct it, that fiduciary is liable as well.

What are the possible consequences of a fiduciary breach?
A person who is an ERISA fiduciary can be liable for a breach of fiduciary duty.  Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan's assets resulting from their actions.  A fiduciary's liability for a breach may also include 20 percent penalty assessed by the Department of Labor (DOL), removal from his or her fiduciary position and, in extreme cases, criminal penalties.


Coming soon, Part 3 - What Steps Can Fiduciaries Take To Limit Their Liability?



From LEGISLATIVE BRIEF Brought to you by The Bramlett Agency, March 2015, Zywave.


This information is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice.  Readers should contact legal counsel for legal advice.
Posted 10:21 AM  View Comments

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