A Fiduciary Test For Retirement Plan Sponsors and Trustees
FIDUCIARY EXAM
If your organization sponsors a 401(k) plan or other participant directed retirement plan, how well are you fulfilling your fiduciary plan obligations?
If you sponsor a retirement plan and/or serve as a retirement plan trustee, you have personal liability (called fiduciary liability) for the operation of the retirement plan as well as the results of decisions made regarding the retirement plan. This personal fiduciary liability includes the results of investments within the retirement plan investment options. You can be sued personally by plan participants (present and past) and beneficiaries. The Department of Labor can take action against you and/or your business for fiduciary violations. There are some very serious violations that often result in significant amounts of money being paid by plan fiduciaries and plan sponsors. In the Department of Labor's fiscal year ended 2002, there were 4,904 cases opened (complaints filed), and 2,877 closed with violations, with an average recovery of over $287,000 per violation.
The following fiduciary exam does not cover all the areas of fiduciary requirements, but rather touches on some of the most common areas of fiduciary non-compliance.
Place an "X" on the line if, as a fiduciary, you comply with the "fiduciary best practice".
1. Is there a fidelity bond naming your plan as the insured?
2. Are your plan fiduciaries aware that they are fiduciaries and have they been informed of their responsibilities under ERISA?
3. Have your plan's investment fiduciaries been appointed in accordance with the plan and the trust documents?
4. Does your plan have a written Investment Policy Statement?
5. Are more than 20% of your plan assets invested in any single investment?
6. Have you removed an investment from your plan, or placed one on "watch" because of its under performance or other failure to satisfy the Investment Policy Statement or ERISA's requirements?
7. Does your plan avoid overlap of similar stock holdings among investment options by offering options from more than one investment management company?
8. Can you offer superior funds from multiple fund companies without restrictions or limitations imposed by your provider?
9. Does your plan have lifestyle funds or asset allocation models for employees who lack the investment knowledge to evaluate and select individual fund options?
10. ERISA Section 404(c) provides personal protection for the plan fiduciaries. (Do NOT assume that you are automatically in compliance simply because the participants make their own investment decisions.) If your plan intends to qualify for this protection, does the Summary Plan Description or other written notice to participants provide ALL of the following?
- Participants will be able to direct their investments; and
- The plan intends to comply with 404(c) and plan fiduciaries may be relieved of liability for losses: and
- The name, address and phone number of the 404(c) plan fiduciary responsible for providing information upon request and for receiving and complying with participant investment instructions.
OUT OF 10 ARE IN COMPLIANCE
If you are out of compliance in any of the above areas, please contact us immediately and we will help you come into compliance. Don't wait and get a violation. Remember, the average recover per violation in 2002 was $287,000.