Your Plan Fiduciary Must-Do and Should-Do Lists
When you’re a plan Fiduciary, you should have a checklist outlining the ERISA “Must-Do’s” that you are required to execute upon. But to keep the Plan running well and its Fiduciaries out of trouble, it’s worth considering some proactive measures that aren’t legally required.
Though these tasks identified below aren’t required by law, we advise all of our Plan Fiduciaries to consider the following steps:
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1. You must have a named Fiduciary.
ERISA requires one named Fiduciary to be the plan’s decision maker and to act in the best interest of the plan participants and beneficiaries. This named Fiduciary should have the expertise to be able to make prudent such decisions.
Plan Sponsors could delegate to a Plan, or Investment Committee to support the named Fiduciary in making those decisions.
This is especially helpful if the named fiduciary somehow lacks the expertise, or time, required to make prudent decisions. ERISA does not require you to make these decisions alone if you are not equipped or duly qualified to do so. ERISA does expect that in in such a scenario, those delegated the responsibilities will undertake them in a manner that leads to prudent decisions that are in the best interest of the plan’s stakeholders.
Insider tip: Make sure that the committee members you choose are indeed able to contribute effectively and efficiently to the process.
If it proves to be more time consuming or cumbersome than helpful, maybe this type of committee isn’t what you need. You can always remind committee members that there may be personal liability associated with failure to meet fiduciary responsibilities under ERISA; this prompts dropout from members who are not wholly competent and confident in their own participation.
2. You must have prudent decision-making processes if you have a Committee.
Now, if your Plan utilizes a Committee (and we think it’s a wise choice to have one), it is important to convene regular meetings and to document the outcomes of the discussions and decisions undertaken at these meetings. A Committee without regular, productive, and organized meetings is bound to drop a ball, and this could be worse than not having a committee in the first place.
You should make your committee as effective as possible by following intuitive committee best practices:
Designate roles, employ meeting agendas, take notes, and execute your action items. Forming a committee shows a concerted effort that avoids any appearance that a plan is not being managed well. Following this intuitive process should keep everyone out of the ERISA spotlight.
Insider tip: Know that the meeting minutes prove a prudent process.
Minutes provide all past and present committee members with a record for when decisions were made, why, and by whom. Minutes are useful as a reflective vehicle for reassessing a choice when the times comes.
3. You must conduct yourself as though you have an investment policy statement established.
While the law does not mandate that you have a written investment policy statement (IPS), it’s a wise move to put one in place. We provide our Clients with an ERISA Counsel reviewed IPS so that a detailed set of investment guidelines are available to reference as ERISA expects Plan Fiduciaries to act as though these guidelines are in place as well as to undertake a prudent process.
When you conduct your regular review of a plan’s investment options and see that one or more funds no longer meet the criteria established for the plan, your Plan’s IPS is going to be your guide in evaluating—and documenting—when and why to drop a fund or choose to leave it on the menu. In an audit, you will be able to show that you followed a set of pre-established guidelines that led to a prudent decision.
You should create an IPS during a downtime when perspective and learnings are well aligned.
A good IPS sets down prudent standards that are established either in practice or in writing when there is time to think proactively about what decisions should be made so that those decision don’t end up being made reactively. The key to the winning IPS is that it is there for you when you need it—thought of, and written, long before you need it.
Insider tip: If you have an IPS, make sure you follow it.
The Department of Labor often requests a copy of the plan’s IPS upon beginning an audit—even though, we mentioned above, one is not required by law. So if you do adopt an investment policy statement, make sure the Committee refers to and abides by it because these actions will be reviewed by the auditors.
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