Your Fiduciary Responsibilities as a Corporate Retirement Plan Sponsor

Employers must make decisions every day. Some are easy, others daunting. When an employer opts to offer a retirement plan, it is a decision, which is both rewarding and challenging. However, when that plan is in place, participating employees, their beneficiaries and the employer benefit. Administering such a  plan and managing its assets require certain actions and involve specific responsibilities.

To meet 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).  Briefly outlined are frequently asked questions and answers concerning retirement plans.

What are the essential elements of a retirement plan?

Each plan has certain key elements. These include:

  • A written document that describes the benefit structure and guides day-to-day operations.
  • A record-keeping system to track the flow of monies going to and from the retirement plan.
  • Documents to provide information to employees participating in the plan and to the government.
Who is a fiduciary?

Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.

A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.

A plan’s fiduciaries will ordinarily 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.

A number of decisions are not fiduciary actions but rather are business decisions made by the employer. For example, the decisions to establish a plan, to determine the benefit package, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions not governed by ERISA. When making these decisions, an employer is acting on behalf of its business, not the plan, and, therefore, is not a fiduciary. However, when an employer (or someone hired by the employer) takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary should consider hiring someone with professional knowledge to carry out the investment andother functions.  Before any choices are made, it is important to consider a few requirements. At the top of the list are knowledge, capability and trustworthiness. This winning combination will ensure professionalism and quality throughout the planning process and beyond.

Pete Scilovati

By: Peter Scilovati, CIMA®
Financial Advisor


*Source: The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA)